$14,300,000,000,000: Debt Limit Showdown Looming

Nov. 8, 2010 -- Republicans took control of the House of Representatives with vows to cut federal spending, but the GOP will soon face a stern test of its fiscal discipline early next year when Congress is set to raise the country's debt limit yet again.

The debate is already raging over what to do. Refuse to raise the debt ceiling and risk a fiscal crisis? Or relent and risk alienating the voters who entrusted the GOP to tighten the federal purse-strings?

"One key test Republicans will face as early as this spring will be whether to bail out career politicians who have failed to budget by increasing the national debt limit, or instead force them to cut spending," wrote Sen. Tom Coburn, R-Okla., in a Washington Examiner op-ed Friday.

"If Republicans vote to raise the debt without insisting on spending cuts, whatever credibility we may have will be gone," he warned.

But Rep. John Boehner, the likely new Speaker of the House, told ABC's Diane Sawyer on Thursday that there are "multiple options" for how to deal with the debt limit, noting that Congress will make sure the country is "ready to meet our obligations."

"Increasing the debt limit allows our government to meet its obligations," he noted. "And I think that there are multiple options for how you deal with it. But for our team, I think we're going to have to demonstrate that we've got to have reductions in spending. The government's spending more than what we bring in. We can't afford it."

"We're not quite sure when we're going to face this increase in the debt limit, but when we do, we'll be ready to meet our obligations," he added.

At this point it appears that Congress will have to raise the debt ceiling sometime early next year. The national debt is currently north of $13.7 trillion, fast approaching the limit of $14.3 trillion.

The looming debate over the debt limit will highlight divisions within the GOP, said Stan Collender, a former staffer for the House and Senate Budget committees and founder of the blog Capital Gains and Games.

"The real tension won't be between Republicans and Democrats. It'll be between Republicans and Republicans," Collender said. "With the Coburn and [Sen. Jim] DeMint wing of the party saying, 'Not over our dead bodies', and the establishment types like Boehner and [Sen. Mitch] McConnell saying, 'We don't have a choice'."

But raising the limit is easier said than done. Just look at the last time Congress voted to increase it. Last February, the Senate vote fell strictly along party lines, with all 60 Senate Democrats supporting the raise and all 39 Senate Republicans opposing it. Come next year, the Democratic majority in the Senate will have shrunk to 53.

In the wake of last February's debate, President Obama formed a bipartisan commission to come up with a plan to cut the nation's soaring deficit. The commission has to submit its report by Dec. 1, but it seems unlikely that a required 14 members of the 18-person panel will agree on a plan to slash the deficit by one-third by 2015.

One member of the panel, retiring Sen. Judd Gregg, R-N.H., said Thursday on ABC's "Top Line" that both parties need to heed the message sent by the voters in the midterm election.

"The message is not confused and both sides of the aisle should have got the message and it's stop the spending, get the deficit under control, get this economy going," he said.

But discord within the debt commission highlights the difficulty of reaching a consensus on how to reduce government spending. If Congress were to refuse to increase the debt limit, the consequences could be severe for the global financial system. Think of the debt ceiling like the limit on your credit card. If you max out, your life doesn't automatically shut down, but you do have to finds other means of funding, such as borrowing cash from family and friends or selling belongings.

The government, for instance, could continue operating with cash on hand or cash coming in, Collender said. Or it could can postpone or delay paying certain obligations, such as payments to contractors, he said. But resorting to moves like that sends an unnerving message to the rest of the world.

That is why while election momentum might be on the side of Republicans, history is on the Democrats' side. No Congress has ever voted against approving an increase in the debt ceiling.

"Ultimately," Collender predicted, "they're going to have to do it. Otherwise they'll throw the markets into turmoil and create all kinds of concerns overseas about the US economy and the US government. I get asked a lot at what point the US would turn into a third-world country. This wouldn't get us there, but it'd get us close."