The debt limit. Some might have heard a thing or two about it and wondered what the big deal. Well, let's talk about it!

The debt limit is the nation's self-imposed credit limit, currently set at $14.3 trillion. It is not a spending limit – the money has already been spent on equipment, salaries, and your college scholarship. Rather, like your credit limit, the debt limit is the point at which the nation cannot spend anymore; however, it still needs to pay back the debt.

The problem is that the nation is out of money, but the fiscal year is not over and the county still needs several hundred billion dollars to make it through September. Unless the limit is raised, the only options are to either cut spending massively or admit that the country can't pay its bills and simply default.

The first option would be painful. Right now the government needs to pay salaries, peoples' Social Security checks, students' Pell Grants at the start of the fall semester, and the war in Afghanistan (10 billion a month!). CNN Money reports that any of the following could do it: cut all non-Social Security spending (including the military and scholarships), cut Social Security/Welfare/Medicare/aid payouts by 70%, raise tax revenue by 2/3s, or some combination at the above. This will take America through to the start of the new fiscal year on November 1st.

Or, the US can just default, publicly stating it can't pay off the debt it owes already, in which case trillions of dollars worth of bonds just became junk. The US debt, in the form of bonds, has traditionally been considered safe debt; investors, including nations, can buy it and be guaranteed repayment with interest. The US, meanwhile, can keep raising money to run the country (and give subsidized education loans). So investors all across the world are sweating bullets hoping they don't just lose massive quantities of money.

Obviously, neither of these is a good option.

Normally, raising the debt limit isn't a big deal: CNN notes that, since 1962, the debt ceiling has been raised 74 times (10 times since 2001).

However, this year things are different: Democrats and Republicans are fighting viciously over the economy and the debt limit is just the latest battleground. The Republicans are refusing to allow a debt limit without massive spending cuts, and they will not accept any form of tax increase; meanwhile, the Democrats have no problem with more modest spending cuts but want taxes too. The argument got so heated that, at the end of last month, the Republican negotiators literally walked out.

The problem is that the plan they are working on, without revenue increases, only cuts $2 trillion in spending over the next 10 years (or roughly twice what we spend on Afghanistan per year), yet CNN reports that to maintain the US debt at 60% of Gross Domestic Product (GDP) through cuts alone would require an immediate cut at $1.2 trillion out of the yearly budget, and 60% is much higher than the historical average. The latest plan only reduces spending by $0.2 trillion a year.

To put things into perspective, the total spending for a year on military and discretionary spending (a.k.a. everything that isn't Social Security) amounts to $1.35 trillion. Without touching the Benefits – grandma's Social Security checks and Medicaid – the government would not be able to do anything. No military, no federal law enforcement, no college grants, and no money for NMT's research department.

The benefits can be cut, but only so much: the population is older and living longer, with the percentage of retirees rising faster than the population is growing. More people are taking from the system than are paying in and, while welfare (food stamps, unemployment, etc) rises and falls with the economy, people are going to get older either way, and short of adopting Sarah Palin's death panel idea, this problem is intractable.

In order to avoid extremely painful cuts in all areas of life, the nation needs to raise more revenue. The President, at the end of 2010, put together a commission to balance to budget. They produced the Bowles-Simpson plan which would, amongst other things, simplify the tax code by ending tax breaks and lowering the income tax rate (ultimately raising an additional $1 trillion a year in revenue) while setting hard caps on government spending and Social Security benefits and making cuts in many areas of the budget. Ultimately, the goal with be to lower the national debt to 21% of GDP, rather than its historical 40%. Unfortunately, the President has not publicly endorsed the plan, making it as good as dead.

Unfortunately, any form of government revenue increase is anathema to the Republicans while Democrats are loath to accept cuts in the Benefits so the arguments go on.

If a reasonable, mature deal cannot be struck,  the country will be left with two options, equally bad: destroy the American economy or destroy the world economy.

Care to flip a coin?