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Question:


I hear about the nation's "debt ceiling" almost daily on the news. What is it and why is it such a big deal?
-Yuanxi


Answer:


The debt ceiling is the maximum amount of money that Congress allows the U.S. government to owe. Every year or so, the national debt bumps up against the previously authorized ceiling and a further increase comes up for a vote. With the nation in hock to the tune of $14 trillion, or nearly $50,000 for every man, woman and child in the country, you can imagine which way these votes tend to go.
 
There is a chance, albeit a small one, that this time around will be different. Increased government spending in an attempt to stimulate economic growth has pushed the national debt up sharply in the last few years. Meanwhile there has been a sudden, widespread recognition that the expanding costs of programs such as Social Security and Medicare make it unlikely that annual deficits will shrink anytime soon. Congressional Republicans are reluctant to approve a debt ceiling hike without a plan to narrow the budget gap solely through spending cuts. Democrats prefer to put more of an emphasis on higher taxes.
 
The Republicans' reticence has created a real chance that the ceiling will not be raised by the Aug. 2 deadline. If that happens, the Treasury could be in default on its debt, which could lead to higher interest rates and a plunge in the dollar. That prospect will probably lead to a resolution at or close to the last minute, but with so much acrimony in Washington, you never know.
-Conrad de Aenlle



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