The debt limit and default: What it means and how it will affect you

As the deadline for an agreement on raising the debt ceiling approaches on August 2, it remains to be seen whether the Democrats and Republicans in Congress can reach a compromise that will allow the federal government to continue to meet its obligations.  Many Americans do not understand the background of the debt limit debate.  Many others don’t believe that it will have an impact on them.

 

The debt limit is the congressionally imposed limit on borrowing.  According to Factcheck.org, the federal government is currently borrowing thirty-six cents for every dollar that it spends.  Part of the problem is that tax revenues have fallen since the onset of the recession in 2008, while federal spending has increased.  When the federal government reaches the limit of what Congress allows it to borrow, it will have to begin choosing what bills to pay and which ones to default on.

 

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Tags: : banking, Barack Obama, debt ceiling, debt limit, geithner, government spending, Laffer, social security, taxes