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Special Report

Debt Ceiling Misconceptions

To hear the discussion about raising the federal debt ceiling, you could get the impression if it isn't done by the end of March, as the Treasury secretary has requested, dire consequences would follow.

The nation would immediately default on its o bligations, the U.S. credit rating would plummet and the government would soon run out of money.

In fact, it wouldn't work that way.

For one thing, no one knows for sure when the current debt ceiling would be breached -- that would depend on the level of spending and tax receipts at the time, both of which fluctuate continually. It could occur at the end of March or much later. And when it did, the government would still be able to spend whatever tax money is on hand at the time and whatever further revenues come in after that.

What's more, the government could postpone contributions to certain federal retirement accounts and other accounts to keep borrowing below the ceiling. As it has done this before, in 2002 for example.

If new spending cuts were passed in the meantime, the drop-dead date could be postponed a bit further. But eventually there will be a drop-dead date, when the dire consequences mentioned earlier would loom.

But the point is there is plenty of time between now and then for a vigorous debate and negotiation over spending and time as well for enactment of the kind of spending restraint that nearly everyone now purports to favor.