Name: Fortune Explains: The Debt Ceiling
Uploaded: 2019-04-30
Duration: 3 min 57 s
Description: A guide to what it is and why it matters.

So a new month rolls around, which means you get paid. But that also means you've got to pay your bills. But what happens when you run out of cash before you could pay for all of that. Well you'd have to borrow money. Just like you and I, The United States government has bills to pay. Borrowing money is exactly what the U. S. Treasury has done for years when it's run out of cash. But governments can't just borrow whatever it wants. The Constitution says Congress must first authorize the borrower. And this is where the Debt Ceiling comes in. The debt ceiling is the limit on the amount of national debt that can be incurred by the U. S. Treasury. You can compare the nation's debt ceiling to the limit on your credit card. The credit card company puts a limit on how much you can spend. But here's the difference. The treasury can ask Congress to raise its Limit. If Congress refuses to increase the debt ceiling, it's saying it wants to spend, but not pay its bills. That's like your credit card company allowing you to spend above your limit, but then refusing to pay the stores for your purchases. The current debt limit is $ 22 trillion and we've already hit that ceiling. Raising the ceiling was once done without much debate, but like much in politics, its become a battleground and those political clashes make markets nervous. Failure to raise the ceiling would have some serious consequences. But we'll get to that later. So how did we get here? The government spends more money than it takes in. As you can see here, the US is in more debt than ever For before. In the last 50 years the debt ceiling has been raised over 70 times, which is a long way from where we started, when it was set at $ 11. 5 billion in 1917, and if you're wondering where the borrowed money comes from, the US issues Treasury Bonds in exchange for hard cash. [ MUSIC ] But just like anyone over time, the government has to give that money back plus interest. [ MUSIC ] Some people might say if Congress and the administration would just cut spending, they wouldn't need to increase the debt limit. [ MUSIC ] But according to the treasury, there is no credible budget plan that will allow the government to avoid the debt limit increase. That's because the government has already committed to so much spending, including the interest owed on its current debts. Those interest payments alone cost $ 896 million every Every day. So here's the question that should have everyone paying attention. What happens if Congress does not raise the debt ceiling when we have reached the limit? In the words of US Department of the Treasury Catastrophic economic consequences. Former treasury secretary Tim Geithner outlined some specific in the letter to Congress. One, interest rates would rise. Two, the dollar would drop and lose its status as a global world currency. And three, say good- bye to a list of things, including social security, Medicare, Medicaid benefits, tax refunds, the list goes on. Translation, another financial crisis. When delays in raising the debt ceiling occur, the Treasury Department uses so- called extraordinary measures. To avoid defaulting on the government's obligations. That's just a fancy term that means juggling around the funds to make sure that the government can continue to pay its bills for now. The Congressional Budget Office estimates time will run out on the current juggling act as soon as September 2019. [ MUSIC ]

Fortune Explains: The Debt Ceiling

Finance

A guide to what it is and why it matters. 