Raising The Debt Ceiling For Dummies

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The Debt Ceiling is a noun used to set an upper limit on the amount of money that a government can borrow.

  • The purpose for the debt ceiling is to help a country meet its existing legal obligations.
  •  The debt ceiling is a figure which applies to the gross debt which includes the public debt and inter-government accounts.

Not until recent times has the debt ceiling actually been made a big deal of and was a basic tool used to handle the budget short falls on expenditures. However, with the heating up of partisan politics in Washington this is no longer the case and raising of the the debt ceiling has become a drama filled sideshow and has highlighted the overall dysfunction that partisan politics brings to the legislative mix.

Since 1940, lawmakers have  raised the debt ceiling 79 times.

  • It has been raised in both small and large amounts. There is this major misconception with a causal follower of these matters that raising the debt ceiling raises the debt and gives Congress the authority to spend more money.
  • In fact, all raising the debt ceiling does is allows the Treasury to borrow more money the  U.S. needs to pay its bills and other obligations on their due dates.

In practice, the money goes to pay bills for services already rendered to our government and the entitlements approved by Congress over the years. The reason for the limit is debatable. However, in theory, the debt ceiling  function is to help Congress control spending.

Supporting a debt ceiling increase has become a contentious choice nowadays.

  • With economics being in the daily news politicians, fear those ” big spender” labels hurled at them come election cycle in the form of attack ads.
  • Also, this mechanism [debt ceiling]  has become a tool for the minority party to try to extract concessions from the majority party for exchange for their support.

What we saw in this recent fiasco was the this very thing with Republicans wanting concessions on spending cuts of Republican interest and also unrelated matters like the Keystone pipeline just to name a few and then of course the defunding of Obamacare.

One thing is for sure no one really knows what would happen if we failed to raise the debt ceiling cause it has never happen before in our history. But most experts agree that nothing of any good would come from it.  The Treasury would not be able to borrow the money needed to payoff our already incurred bills and the nation would be in default. Which would rock the worlds financial markets.

Here is a video to supplement the information here:

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