If your paying attention to political and business news, it appears that almost everyone thinks that a debt ceiling raise must happen. Including many elected officials in Washington. Which is a rarity that both parties actually agree on something these days. So why hasn’t the debt ceiling raise been put to a vote already? Because, unfortunately, both parties feel it’s absolutely necessary to tie the debt ceiling raise to a new budget cuts proposal. Which has done nothing to move the budget proposal along. Instead, it has held the markets and your investments hostage, putting them at risk if the government can’t issue new debt to pay it’s bills.
Why Is The Debt Ceiling So Important?
The debt ceiling puts a limit on the total amount of debt the government can issue. The proceeds from the debt help cover the costs of running the government that taxes, fees, fines, etc. fall short on from time to time. The problem arises when no more debt can be issued to cover this shortfall. Then the Treasury Department has to borrow money from Social Security, Medicare, and other government programs to cover the difference. If this goes on for too long, the money eventually runs out and bills become overdue.
Everyone knows overdue bills are a bad thing. If Greece has taught us anything, a government, especially the U.S., not capable of paying it’s bills could affect the world economy. Raising the debt ceiling is a simple, quick, easy solution to prevent another potential financial downfall. Does its necessity diminish the need for a budget makeover? No. But it needs to happen whether budget cuts are approved or not.
The Potential ‘What Ifs’
The U.S. government has raised the debt ceiling 74 times since 1962. The way some people discuss it, it sounds as though it rarely ever happens. But the concern isn’t what will happen if the debt ceiling is raised. It’s what will happen if it isn’t? So I offer you a quote that paints a pretty good picture of the potential outcome:
Unfortunately, Congress consistently brings the Government to the edge of default before facing its responsibility. This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets, and the Federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility—two things that set us apart from much of the world.
Read more at the American Presidency Project: Ronald Reagan, 1987
Sounds very familiar. Whether it’s worth playing with fire and affecting peoples savings and income shouldn’t be in question. It’s hard to believe that some politicians are willing to risk it all to make a point.
