The debt ceiling, the legal limit on borrowing by the federal government, is a critical issue. Currently it’s just over $14 trillion, and with all the borrowing the Obama administration has engaged in to fund initiatives like the stimulus program, total U.S. indebtedness is rapidly approaching that number. If the debt ceiling is not raised, the federal government would have to cease borrowing — meaning it could, for the first time ever, default on its obligations.

Right now all the action is in the U.S. House of Representatives, where a majority of the House Republican Conference sent a letter to House Speaker John Boehner (R-OH) and Majority Leader Eric Cantor (R-VA) “laying out conditions to be met before a higher debt ceiling is agreed to.”

The letter “called for discretionary and mandatory spending cuts to halve the budget deficit next year, spending caps to hold Washington’s spending to 18 percent of gross domestic product, and passage of a balanced-budget amendment.”

The strategy, which is known by its nickname “Cut, Cap, and Balance,” is expected to dominate the discussion surrounding the debt ceiling as events move forward.

Conservatives have embraced the plan, which is expected to be put forward in the Senate by the likes of South Carolina’s Jim DeMint and freshman Utah Senator Mike Lee. They especially like the part about securing passage of a balanced budget amendment to the U.S. Constitution, but only if it includes a supermajority requirement to raise taxes and strict spending limitations pegged to U.S. GDP. Says Colin Hanna — president of Let Freedom Ring, a group that promotes constitutional values and economic freedom (disclosure: I am a senior fellow at Let Freedom Ring):

It’s our goal to form a coalition of as many conservative groups as we can find that would support a pledge to commit the signers not to vote for a debt-ceiling increase unless three conditions are met.

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