What Is A Debt Ceiling?

October 10th, 2013 Posted in Economy|Mortgage 101

Simple Explanation of the Debt Ceiling

Simple Explanation of the Debt Ceiling

What Is A Debt Ceiling?

A debt ceiling is a ceiling or an upper limit on how much the United States can borrow.

How Does The United States Borrow Money?

Mainly by selling Treasury bonds. The government borrows money from both foreign and local individuals to institutions, both state and foreign governments. Simply put – it borrows from a wide array of investors across the globe.

Why Does the Government Need to Borrow Money?

To pay for the deficit (of the government’s expenses) that goes above government’s income.

Why Does There Have to be a Debt Ceiling?

To control and manage government spending and to have a better understanding of the fiscal situation.

What Happens If the Debt Ceiling Is Not Raised?

The government won’t be able to pay for its expenses and will shut down.

What Happens If the United States Stops Paying Interest on Its Debt?

The outcome would be totally unthinkable and unimaginable. The United States Treasuries are considered the safest of all investments and held as the standard base of the global financial system. If the United States fails to meet its obligation, there will be a global financial crash, causing a global recession and meltdown in such a scale that it will be beyond anything the world has ever experienced before. Although the US failing to meet its debt obligation is technically possible, it is very unlikely to happen.

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