Debt Ceiling

Luke Sanders

FIN 3403

September 28, 2011

The Debt Ceiling Deal

The debt ceiling is the legal limit on borrowing by the federal government. The nation’s debt was inching closer and closer to reaching its limit, so something had to be done. Our country has never defaulted on its legal obligations. When I say legal obligations I am talking about people buying bonds. The money received from these bonds is what pays for all sorts of things the government is responsible for. This including things like pensions, social security, welfare, and food stamps to name a few. After people purchase these bonds eventually they receive a certain amount of interest for them at a specified time. To this day our nation has never missed a payment to these buyers. This being the reason why our bonds are so credible and popular throughout the world. The big dilemma going on is that to increase the ceiling it has to be voted on by congress. In the past this has been no problem but we actually hit our limit before they could get an increase on the ceiling. The date was May 16th, 2011 when the limit was reached for the first time in our history. Thanks to quick thinking and some maneuvers by the Secretary of the U.S. Treasury, we avoided going over the limit. He managed to move some funds around and push the date back to August 2, 2011 until the deficit would reach and surpass the ceiling.

When August 2nd came around both the House and Senate had passed the increase on the ceiling. The way that this increase was possible was with the plan to cut certain funds over the next 10 years. “At least $2.1 trillion in spending cuts: The framework will immediately cap domestic and defense spending, resulting in cuts of $917 billion over 10 years”. That is just the beginning for the cuts. A second round of cuts is to be determined by some time in November, which will result in “between $1.2 trillion and $1.5 trillion worth -- to be determined by the end of this year and imposed over 10...