1. After the end of WWII, for a variety of reasons, the US became the economic powerhouse of the world. The reasons aren't important. What is important is that our debt became solid gold, and has been ever since.

2. However, we spend more than we bring in, so we have to add debt. This is actually not unusual at all. Most big Western nations have debt. Many economists say that this isn't even a bad thing, so long as the debt is manageable.

3. If you want to talk about how much debt is good or bad for a major world government, one that is considered stable and otherwise functional, then you usually talk about it as a percentage of GDP, rather than as a flat number. Compared to other world governments, the US is right now not in big trouble, considered as a percentage of GDP.

4. However, we are ACCUMULATING debt at a high rate. If we were accumulating debt very slowly, say, at a pace such that the growth of the national debt was proportionally matched by growth in the GDP, or if the national debt was only very slowly increasing relative to the GDP, then we would not have a problem at this point. We'd still be well within normal tolerances.

5. But that isn't what's going on. We were doing really well around 2000. At that time, the Legislature deemed it wise to cut taxes and declare two foreign wars, more or less at the same time. This is roughly like if you got a pay cut, and decided that the appropriate response was to buy a new car on credit and also go on an expensive vacation.

6. The proportion of how we pay for things is now around 60/40. That is, we bring in via taxation and whatnot around sixty percent of what it costs to run the country for a year. We borrow the other 40%. It is very important to note that this doesn't all come in at tax season; that 60% trickles in via withholding from paychecks and other sources over the course of the year. It should be obvious that this state of affairs is not sustainable.

7. Returning the national debt to a lower level is quite difficult. You have several tools in your arsenal. One is to raise extra revenue. Unfortunately, everyone hates paying taxes and they are likely to resist this very strenuously. However, you'd have to increase your revenue by around 2/3 just to start breaking even! That's not going to work. You can also cut expenditures. Well, to balance the budget is going to require you to cut about 40% of it. That's incredibly brutal. And it isn't as clear-cut as getting rid of waste, because there will always be knock-on effects. That money all goes somewhere. Hippy pacifists like me would like to maybe cut the military budget some, maybe end some wars, but even if there were zero geopolitical ramifications to doing that you'd put lots of military contractors and soldiers out of work. If you cut welfare and social security, those people stop spending money. Many economists believe that these results of cutting spending are so bad that large spending cuts during a recession are counterproductive. Contrast this with those who believe that raising revenue will damage people's ability to expand the economy, because people won't have the money to reinvest.

The end result of this is that you have two groups of people you need on board, and each group things that one of the major solutions will destroy the earth. It's an intractable dilemma.

7a. The best solution, if you ask economists rather than politicians, is probably to raise revenue from certain sectors that are under-taxed, maybe shift domestic policy somewhat with a few cuts and adjustments to spending, and to encourage the economy to grow proportionately faster than the debt, such that even if it stays the same it becomes a smaller percentage of the GDP.

8. To circle back around, the debt is growing really fast. There is a law called the Debt Ceiling. It expresses the maximum national debt we can have at any one time. Think of it as kind of like the limit if you added all your credit card's maximum balances up together. We have maxed out all the cards already, and have enough cash money in our pockets and bank accounts to pay all our bills until some time in August. The precise date is somewhat debatable, but it is out there and it looms larger every day. It is SERIOUS BUSINESS.

9. We have enough money coming in, from withholding and so forth, to keep making the interest payments and so forth on our debt. We could manage to never default on any T-Bill ever, quite easily. However, we would probably have to do something very drastic, like suddenly stop paying all our overseas soldiers, or shutting down big government services, or not sending out that month's social security checks (imagine a lot of seniors suddenly getting hit with penalties for their checking accounts and/or not being able to pay the rent, light bill, buy groceries, etc.) These are seriously the things that could happen. Start thinking about that word "Apocalyptic" now.

10. In order to prevent that kind of really serious bad thing, the debt ceiling has to get raised. We have to authorize the Executive branch to borrow more money, just to get us by until we can get things under control. That might take a year or two, or probably more like five. We really need to be making something like a five or ten year plan, instead of thinking about this from month to month like a normal household might. This is because the US Economy is huge and has a lot of inertia, so it handles more like a freight train than a sports car.

11. Many people in the legislature, for a variety of reasons, have decided that it is time to draw a line in the sand. No more debt than we already have! We already have too much, so the solution is to just not spend more money. We definitely can't raise taxes, either. It's just more money to waste. These people are probably correct that we spend too much money (although leftist hippies like me disagree with them about which expenditures are excessive), but their way of solving this problem is frankly insane. They don't understand that inertia I was talking about in point ten. Those kinds of violent changes in government activity produce instability. The market hates instability. It especially hates instability where a ton of people who had a revenue stream before all of a sudden don't, so all the guys who were servicing them are now also broke, and so on and so forth all through the system.

They don't believe any of this. They don't want a ten year plan they want everything they want RIGHT NOW and they don't care about all the grown-ups very calmly trying to explain things to them. You're going to see a lot of comparisons to tantruming toddlers, and they're fairly accurate.

12. So. Raising the debt ceiling is unpalatable to certain political sectors. Because of this, it may not happen, absolutely regardless of the consequences.

13. The consequences are more than what we talked about above, the simple knock-on effects of big streams of money drying up instantly. They also involve our Credit Ratingbeing downgraded.

14. The world financial markets are extremely big and extremely complicated. There are lots and lots of different kinds of debt instruments and other investments that you have the option of spending your money on. There are some organizations that do nothing but rate various kinds of investments for how risky they are. The US is rated at AAA, which is the very highest rating. In practical terms, though, we have in recent history been effectively even better than AAA. US Debt (in the form of T-Bills) is so good that it forms a kind of "floor" for interest rates. Put in short: Many, many other interest rates all around the world are in fact a function of the current interest rates on t-bills. If the interest rate on US debt goes up a percentile and a half, so do they (This is massively oversimplified, but close enough for this explanation.) The reason for this is that US Debt is so good. If your debt is more likely to default than a T-Bill (which is pretty much everything in the universe, up until two months ago), and a T-Bill offers 3%, then nobody is going to buy your debt unless you can offer 3%+, or if no more T-bills are available.

15. Conversely, the US can get that absolute lowest interest rate because they are so bulletproof reliable. This also produces liquidity, another plus. Because there is a lot of US Debt out there, and because it is so reliable, if you are a large organization in the business of investment it's pretty much just as good as cash. There is always someone out there who will take your T-Bills at only a fraction of a point below their face value or so. So, they're a good investment not just because they are reliable, but because you can liquidate them into cash at any time for only a very small "penalty."

16. If we can't pay our bills one day (and remember, this includes an inability to make schedules payments to soldiers or seniors, not just defaulting on an actual T-Bill), or if our political process gets so close to the wire that it even looks like it COULD have happened, the ratings agencies will reduce us from our AAA rating.

17. The Apocalypse happens here.

18. This is because all of a sudden the US Debt is not the platonic bottom of the interest rate heap. There is a LOT of US Debt out there. Much of it is held by organizations which can ONLY own AAA rated debt. They will have to sell all their T-Bills. There will be so many on the market that they may have to even sell them for less than their face value. It should not take an economist to realize that if nobody wants a hundred-dollar check from you any more, in fact they don't want it so much that they will sell it to Bob for only 80%, that everyone thinks you are fucked.

19. Because there will all of a sudden be so many unwanted T-Bills on the market that are at X% interest, it should be obvious that the US will no longer be able to convince anyone to buy one at X% interest. If people wanted that deal, it's already there. People are actively trying to get rid of that deal. The US will instead have to (in order to convince anyone to buy it) sell debt at Y% interest. Y is bigger than X. Maybe quite a bit bigger. In fact, the US will (possibly!) only be able to sell debt at an interest rate that is HIGHER than debt which is AAA rated.

20. It's really hard to talk about what anything else will be worth if the US Debt gets devalued, because a financial storm of chaos the like of which is literally unthinkable is going to occur. Because of how many organizations base their portfolio on T-Bills (like, say, a lot of major banks?) all of those organizations will literally become poor overnight. If you have a vault full of a billion dollars of US Debt (that figure referring to how much they will be worth in a year, and because they're so bulletproof they're worth damn near the same as cash), and then one morning you HAVE to sell them all off, and it turns out they're really only worth a fraction of that...there's just been a massive destruction of wealth.

20a. Banks can loan out money at a percentage of their holdings. The percentage is usually larger than 100%, in fact. So, if I have a billion dollars in T-Bills, I can actually go out and have 3 Billion Dollars in loans outstanding. This is great for the economy, because people who want to buy durable assets (like factories and small businesses, or whatever) can get a loan. I all of a sudden then bank either doesn't have those T-Bills, or they become worthless, they have real problems gaining the ability to loan money.

20b. Even if that wasn't at issue, the interest rate on everything is going to go up due to instability. If you could previously get a loan for something at 5% interest, it may now be 10% interest. You won't like this. You may decide to stay home and do nothing instead. Everyone else does the same, the economy grinds to a halt, etc.

21. And now all those people who had to sell off their US Debt have to buy some other AAA rated debt, which is really hard because the markets are in so much chaos that it isn't really obvious any more what is a stable investment or not. After all, it's hard to say off the top of your head who else might get completely f****d by the crash of T-Bills, and so "stable" is now a somewhat meaningless term.

22. Economies all across the planet crash and burn. I hope you spent your last paycheck on gold and bullets.