Facts about the debt

Barack Obama, John Boehner and Mitch McConnell — Chip Somodevilla/Getty Images

With the federal government closing in on its legal borrowing limit, President Obama and Congress are in the midst of an intense debate over the nation's spending and borrowing practices. Depending on how it plays out, may be a just a flash of partisan politics or a decisive turning point in American history. To understand what comes next, CBSNews.com takes a look back at 70 years of debt, spending and default in the American budget.

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Breakdown of Government Spending, as Percent of GDP

This chart shows how government spending in fiscal year 2010 was split between Social Security, Medicare, Medicaid, defense and the rest of the federal budget.

Information from the Office of Management and Budget.

The History of Social Security

President Roosevelt signed the Social Security Act into law in 1935 in the midst of the Great Depression. The initial version of the law only benefited the primary worker of the family, but by the time the first benefits were paid out in 1940, the law had been amended to include survivor benefits and the benefits for the retiree's spouse and children. The law was amended again in 1956 to include disability benefits.

In 1981, a scare resulted from predictions that the Old-Age and Survivors Insurance Trust Fund, where Social Security benefits were paid from, would run out money in August 1983. Congress and the president created the bipartisan National commission on Social Security Reform to suggest a solution. In 1983, the commission issued a report that lead to the 1983 Social Security Amendments, which allowed the money to be taken off-budget and invested in U.S. Treasury bonds.

This year, the program will pay out $726 billion this year and is expected grow to $1.2 trillion a year by 2020. Current projections expect the Social Security to run out of money in 2035, without changes to the system.

The History of Medicare

As the government has grown, spending on the social safety net for Americans has grown with it. Today, the number of people enrolled in Medicare grows at an average 2 percent a year. The program costs $574 billion a year and is expected to cost $1 trillion a year by 2020.

President Lyndon Baines Johnson established Medicare with the passage of the Social Security Act of 1965. Prior to passage, almost half of seniors lived without health insurance. Medicare Part A focused on hospital care, while Part B covered supplemental medical insurance for those over 65 years old. In 1972 Medicare expanded to include those who received Social Security benefits or disability payments for at least two years. Part C is the Medicare Advantage, which provides additional coverage and Part D is the prescription drug benefit added in 2003.

Government spending, percent of GDP

This chart shows the proportion of Gross Domestic Product taken up by the federal budget over the last 70 years. The first spike shows government spending during World War II.

Information from the Office of Management and Budget.

Raising the Debt Ceiling

The debt limit was put in place to prevent the Treasury from issuing new debt to cover short term bills. Congress implemented the first debt limit in 1917 as part of the Second Liberty Bond Act. The law delegated the approval of individual bonds to the Treasury, but still allowed Congress to have control over the country's finances. The limit applies to debt issued to the public and debt borrowed from the government

U.S. Debt, 1950-2010

This chart shows the amount of government debt over the last 60 years. It does not take inflation into account.

Information from the Office of Management and Budget.

The technical default of 1979

In 1979, the federal government briefly defaulted on its legal obligation to pay interest on the debt, though the Treasury Department maintains it was a technical bookkeeping glitch and not a true default. Due to a delay in raising the debt ceiling and word processing problems, the U.S. Treasury delayed making payments on bills maturing on April 26, May 3 and May 10. The world didn't end, but market confidence in the "risk free" investment was fundamentally shaken. Yields on T-bills rose by about six tenths of a percentage point. An increase of that size today would amount to an extra $90 billion a year for the government.

The Ramifications of Default

The U.S. dollar is the world's reserve currency, with many countries around the globe basing their money on the greenback. Many international commodities, including oil, are priced in dollars. This allows the government to borrow at lower rates and U.S. business to purchase foreign goods at lower rates. These advantages are in part because the dollar is considered the safest currency in the world. A government default would damage that confidence.

The credit markets need government bonds to be risk free. A delayed payment could send interest rates soaring, making it difficult for businesses to get credit to grow and homeowners to pay their mortgages. Housing prices could fall and the economy could slow dramatically.