The beginning of next week will determine whether the US will have to officially default on its debt commitments. On August 2nd, the $14.294 trillion threshold at which by law America can no longer borrow money, will be reached. In a speech last month Ben Bernanke outlined the consequences of a failure to raise the debt limit. He said,
"Failing to raise the debt limit would require the federal government to delay or renege on payments for obligations already entered into. In particular, even a short suspension of payments on principal or interest on the Treasury’s debt obligations could cause severe disruptions in financial markets and the payments system, induce ratings downgrades of U.S. government debt, create fundamental doubts about the creditworthiness of the United States and damage the special role of the dollar and Treasury securities in global markets in the longer term. Interest rates would likely rise, slowing the recovery and, perversely, worsening the deficit problem by increasing required interest payments on the debt for what might well be a protracted period."
The debt-limit debate has highlighted attention on the origins of the US public debt. Times has an excellent graphic that shows who the US government owes its $14.3 trillion debt and the respective contributions of various Presidents.
In 2001, George Bush inherited a surplus, with projections by the Congressional Budget Office for ever-increasing surpluses. But every year starting in 2002, the budget fell into deficit, and when Bush left office it stood at $1.2 trillion in deficit for 2009. The graphic below shows the damaging effect of Bush tax cuts, all of which if allowed to expire by end-2012 would cut deficits by about half. President Obama’s policies, a fait accompli given the circumstances when he took over, did not add much to deficits.
The Economist has this graphic that shows the evolution of the official debt limit under various US Presidents. The US Congress has acted a total of 91 times since June 1940 to either raise, extend or alter the definition of the debt limit—36 times under Democratic presidents.
See also this Q&A on the US debt ceiling debate.
Update 1 (12/2/2012)
Ezra Klein has this excellent graphical illustration of the origins of America's current debt woes.