Written by Nolan Dang
It’s
been on the news for a while, that the United States Government is going to
shut down because it reached the government reached its debt limit. It’s not as
bad as it sounds, the government isn’t disappearing forever but there are
severe economic repercussions.
So
to begin with, what is a debt ceiling? The debt limit is the monetary limit,
that the US government is allow to spend before it has to default on its legal
obligation, the current amount that the US congress allowed the US to borrow
was 16.39 trillion dollars and the US is already reaching that amount.
But
what happened when the Government reaches its debt limit? Once this debt limit
is reach by the government, the US government has either a choice to raise the
debt limit which allows the us to spend as much as it want, until it reaches
the new debt limit, where the US congress can simply raise it again. Or they
can choose not to raise the debt limit and default on its legal obligation,
such as social security, Medicare benefit, and military salaries. This provides
an incentive for government to provide a solution or else the US population who
depend on these services would be in dire need of help, because the government
wouldn’t be able to provide the services that they depended on.
But
even delaying the decision of what to do with the debt limit can still cause
backlashes major backlashes to the economy. Arguing over the decision of
raising the debt limit or keeping at the current amount, would create uncertainly
on the bond market causing upward pressure on interest rates. These rate
increases cause by this would also put pressure on US businesses and divert
tax-payer money away from certain federal areas such as infrastructure,
education, and healthcare. And downgrade
the US credit rating, and can throw the stock market into a panic, like in 2011
when the debt limit was raised, the Dow Jones Industrial Average plunged
roughly 2000 points.
Not
only would the US would feel these economic backlashes but foreign investors
and the dollar value would also face dire consequences. Foreign investors
invest their money into the US because it was deemed as the safest place to
store and invest with their savings. But with the news of the debt limit being
reached and the predicted consequences, makes foreign investors, lose confidence
within the US, which then influences them to withdraw and remove their investments
out of the US, causing the US dollar to be worth less, causing the dollar to
not be remembered as the world’s reserve currency. But even though the dollar
would be worth less, there would be slight benefit for US business that rely on
private good exports to make an income. The depreciation of the dollar would
increase foreign demand for the goods provided, because they would be cheaper.
So
what happens now? Most likely the government would choose to raise the debt
ceiling again like before, because the benefit of more government spending and
government services, outweighs the cost of mounting debt. It may be the easiest
choice, to help relief the rushing issue of government services, but it only
prolongs the looming problems of our unending government debt.
"Debt
Limit." Treasury.org. N.p., n.d. Web. 1 Oct. 2013.
<www.treasury.gov/initiatives/pages/debtlimit.aspx>.
"Government
shutdown versus the debt ceiling: Why hitting the debt limit is scarier than
closing the federal government. ." Politics, Business, Technology, and
the Arts. N.p., n.d. Web. 1 Oct. 2013.
<http://www.slate.com/articles/business/moneybox/2013/09/government_shutdown_versus_the_debt_ceiling_why_hitting_the_debt_limit_is.html>.
"The
Debt Limit Explained - YouTube." YouTube. N.p., n.d. Web. 1 Oct.
2013. <http://www.youtube.com/watch?v=KIbkoop4AYE>.
"The
Debt limt." Cfr. N.p., n.d. Web. 1 Oct. 2013. <www.cfr.org/budget-debt-and-deficits/us-debt-ceiling-costs-consequences/p24751>.
I agree with you 100%. Our government will do what it has always done, putting off our problems for our posterity to deal with. Some people believe that we won't let our government collapse, that too much depends on it. But as we've already seen, with the government's bond rating decreased for the first time ever, we're getting there. Soon people will begin to realize the risk of investing in our government, and begin putting their money elsewhere. The Treasury will begin to backslide even more than it already has, eventually having no other option but to print more money to pay off all its debts. The result is hyperinflation, like what they faced in Hungary, Germany, and other countries whose economies collapsed completely.
ReplyDeleteI find it so horrible that they had raised the debt ceiling back in 2011, and the fact that the US government wants to do it again is hurtful. As a citizen of the United States I'd like to see a decline in our nations debt not an increase. I don't understand why America has to keep spending so much money on everything when in finance classes they teach us to save and invest wisely... well maybe the US government should reconsider their investments because clearly they're not paying off and to raise the debt ceiling would just try to avoid the actuality of how much trouble the United States is in.
ReplyDeleteI agree with this. Most people questions the governments ideals like raising the debt ceiling and putting off our problems. Now that the Government shut down Everyone is questioning the ideals the government has done and the American people want to know. What will the government do when it is up and running? Will people want to have a riot in front of congress, or will they just let this go and continue living?
ReplyDeleteI think it is completely ridiculous with how the government is acting and what they are doing to solve it. It’s sort of dealing with children essentially. The government is only hurting itself if it continues to raise the debt limit. The men and women behind this are only putting the country more and more indebt instead of trying to decrease it to better what it is going on. The United States is just going to keep digging a bigger and bigger hole for itself where there will be no return if this system continues on. It’s really worrying to see as a US citizen but can you imagine how worrying it is to other countries to see how much debt the US is putting itself into and they still have to interact with this country and its government? Other countries already see what we are doing is rather childish to say the least and many of the citizens here would agree with it too. I myself agree that it is ridiculous and I don’t even pay attention to this sort of thing all that often if not at all. But this is a serious issue and something needs to change concerning all of this.
ReplyDeleteWhile it is true that the government shut down due to the government going bankrupt, It would be naive to assume that the government should just raise the debt ceiling again. That is the path that the government has been down multiple times before and it is shown to not work. This fact is further driven forward with the fact that we are in a state of federal disrepair. Simply driving the debt ceiling would not be enough to fix the issues that the country faces.
ReplyDeleteI completely agree. The raising of the debt ceiling would only make matters worse. To fix the issue the government must find areas to cut back on, because pushing back the limit farther will put our country in a worse position that it is already in. There are many places the government could cut back money, like in the simulation we did in class. It is necessary for some cuts to occur, and that is where the government should be focusing on now.
DeleteThe fact that they would raise the debt ceiling is complete selfishness and obliviousness. All this country cares about is its money and because of that, that is why the government is willing to shut down certain sectors because we simply don't have money. I'm pretty sure if the government thought of a list of ways to conserve money and cut some unnecessary expenses, they wouldn't have to raise it as much. So wait, they're short on money, so let's shut down part of our government, BUT, let's still pay congress even though they are the majority of the reason it even happened in the first place. Very smart!
ReplyDeleteIn my opinion, the debt ceiling should not be raised once again. By raising it, nothing is being done and our debt will continue to grow. Although we don't have to make crazy, over the top changes that will impact how we live I think that we should make some small changes that will impact our debt over time. The fact that they are debating what to do is not good because if they act as if we have not even reached our limit multiple times it will get worse!
ReplyDelete