US Debt Ceiling

A simple way to explain the current US Debt Ceiling crisis.

Debt Ceiling - Debt Ceiling is about money that is already being spent.

Let us look at the following analogy.

You go to Wal-Mart and buy an expensive household item. You pay for the item in EMIs. Later on, you think that you have spent a lot of money and you just want to stop paying for it. But, you forget that you have bought it and have used it. You have to pay for it.  

Debt Ceiling is similar to the credit limit on your credit card. Your credit card is unusable once it reaches the limit and unless you pay what you owe. But, debt ceiling is like one big loan. US is one of those few countries in the world, which by law needs to keep on increasing its credit limit. US just keep borrowing more and more. The debt ceiling is the absolute top amount of money that the US can owe to anyone at any given time. The current debt ceiling amount is about $14.3 trillion. In order to keep things going on, the Congress needs to increase the debt ceiling amount. The current debt ceiling will reach its limit on 2^nd August 2011, after which the US Government will not have money to pay for services like Social Security Administration, Health Services, Military etc.

The US has increased its debt ceiling limit before many times. But this time, it cannot be done for obvious reasons.

How does US borrow money?

US borrow money by issuing bonds. Bonds are a promise to repay money at a particular interest rate over a given period of time.  The US is thought to be a safe investment bet. There are countries which issue bonds but one is not sure what the future of that country looks like. Also, the US have got the highest credit rating (AAA), which means that it repays all the money which it can borrow. It has always paid its debt on time. Hence, the US is looked upon as a safe bet.

What happens if debt limit is not increased?

The US hit the debt limit on May 16^th but the Treasury Secretary was able to provide some quantum by moving money around, keeping the US solvent until August 2^nd 2011. If the debt ceiling limit is not raised by August 3^rd 2011, somebody is not going to get paid.  Some people think this may lead to a financial crisis. But, nobody knows what will happen because this has never happened before. Nobody is sure what is going to happen.

Clash of opinions.

Republicans are of the opinion of increasing the debt ceiling limit as Mr President wants it to be. But, they want guaranteed spending cuts immediately.  They want to regulate the US budget so that US is not driven all the time to such massive levels of debt.  Democrats are of the opinion that this is not the right time to start cutting Government spending in such a fragile, recovering economy. Businesses have not recovered from the effects of recession. If the Government reduces its spending, then the economy is at a severe risk of another economic downturn.

Ultimately, what is going to happen will only be known after 2^nd August 2011 if the debt ceiling is not increased by then.

PS: I have just tried to explain the current US Debt Ceiling Crisis based on my understanding. 

Types of people

Long time back, I had come across the following text which, according to me truly depicts the mindset of today's generation when it comes to work.

Here it goes:

This is a story of four people called Everybody, Somebody, Anybody and Nobody.

There was some important work that had to be done, and Everybody was sure that Somebody would do it. Anybody could have done it, but Nobody did it. Somebody got angry because of this, since it was Everybody's job. Everybody thought Anybody could do it, but Nobody understood that Everybody wouldn't do it. It ended with Everybody blaming Somebody as Nobody did what Anybody could have done.

Oooops.............Got it? ;)

If You Didn't , Read Again....


PS: I do not remember the source.