What is America’s Debt Ceiling?

Have you ever wondered what America’s Debt Ceiling is? Have you wondered why the debt ceiling has been raised so many times in the past? If you have, then you’re not alone. With the news media covering America’s debt ceiling on an hourly basis, it’s no wonder we’re wondering what exactly it is.

America’s debt ceiling is a limit set by Congress on how much money the federal government can borrow. America’s debt ceiling limits total government debt that the United States can assume, assuming current policies remain unchanged. This amount has been rising steadily since World War II and has reached 16 trillion dollars equivalent in January 2011. According to a nonpartisan Tax Policy Center study, nearly 40 percent of Americans (47.3 million people) have some debt, with average annual payments exceeding 50 percent of their income in 2009. Yet, taxpayers across all income groups have experienced little change in their share of total outstanding taxes over time.

According to a new study, Americans owe more on their credit cards than they owe on their houses, cars, and other items of personal value. In addition, the average American carries debt for nearly all private expenditures except retirement payments, student loans, and medical bills.

America’s debt is rapidly approaching the ceiling, and Congress must decide if they will raise it and by how much.

What happens if we default on our debts?

How is America’s debt ceiling problem affecting you? Amazingly, the debt ceiling debate doesn’t affect Americans who already have debts. Instead, it affects everyone who will be paying off their debt in the future. This means that your credit score might be affected, but it won’t be due to the impact of your debt on the economy. Instead, it will be a traditional — and highly unattractive — factor that may delay your economic recovery.

There are many dire consequences of defaulting on your US or federal debt. You could lose your car, your home, your Social Security benefits, and even your job. The good news is that you only default once. However, once we begin to default, we enter into a period known as ‘default tourism.’ This is where people from all over the world rush to have a chance at getting their debts forgiven by the US government or by a court before we pay them off.

What happens if our creditors decide that it is no longer profitable to pay us what we owe them? The United States has a highly punitive debt ceiling. If the government doesn’t cut its budget, it will default on its debts and cause a panic that could cause a recession. What happens if the United States goes over the debt ceiling? The consequences could be enormous economic hardship on a scale not seen since the Depression.

One of the most effective ways to fight the national debt is to make it harder for the United States to borrow more money. We recommend that Americans resist the temptation to engage in “borrowing for the sake of borrowing” as a way of life. Instead, we should be focused on creating new opportunities and investing in ways that create jobs and limit our obligations. This will ensure that existing revenue streams are not used to create more debt and leave future generations with greater levels of debt.

Other options for dealing with America’s debt ceiling — all of them bad. First, we could increase taxes on wealthier households; second, reduce spending on programs that don’t help people who need it (healthcare, education, etc.); and third, increase taxes.

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