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Rank: Advanced Member
Joined: 1/16/2011
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Location: United Arab Emirates
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Dear Colleagues.
I have been passing through an economic term but not sure about its clear meaning.
Could you kindly explain me with the example of the following economic term.
"debt ceiling"
Thanks.
A friend in need is a friend indeed.
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Rank: Advanced Member
Joined: 10/2/2009
Posts: 1,546
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Location: United States
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Dubai wrote:Dear Colleagues.
I have been passing through an economic term but not sure about its clear meaning.
Could you kindly explain me with the example of the following economic term.
"debt ceiling"
Thanks. The debt ceiling is the maximum amount that the U.S. national debt is supposed to reach. It's a limit set by Congressional legislation and then raised regularly by more legislation. Effectively, it's pretty meaningless since the same people who voted for the limit are the same people in charge of setting the budget and the same people who can simply vote the limit higher when they need to. Originally, the idea was that it would limit Congressional spending. Or, at least, try to give Congress some sort of reality check on their spending. Since they can raise it whenever they like, and reality is the least of their interests, it has no such effect. However, it does create the occasional artificial "crisis" as memebers of Congress threaten NOT to raise the debt ceiling, which would throw the federal government into default on its many obligations--everything from payments to the elderly and infirm, to electrical bills for office buildings. Essentially, it's a way for Congress to muscle in what they want (or don't want) in the budget, make themselves look petty, and attempt to sabotage the economy since that is the leading predictor of Presidential elections other than mobilizing for war. So, what was supposed to be a warning system to Congress about their behavior effectively becomes a weapon they can use to blackmail the nation, the President and damage their own political standing. I don't know if that explanation actually helps....
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Rank: Advanced Member
Joined: 1/16/2011
Posts: 272
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Location: United Arab Emirates
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Thanks Geeman for such an explanatory reply.
Can you please explain me who pays this national debt and who is the receiver.
Thanks.
A friend in need is a friend indeed.
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Rank: Advanced Member
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Use your instinct -it is a safe bet.
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Rank: Advanced Member
Joined: 10/2/2009
Posts: 1,546
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Location: United States
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Dubai wrote:Thanks Geeman for such an explanatory reply.
Can you please explain me who pays this national debt and who is the receiver.
Thanks. Well... that's the big question, isn't it? Most of the debt is owed internally. That is, one branch of the government owes it to another, or state governments owe it to the federal government, etc. A trillion or so is owed by everyday households, another trillion or two is owed to the Social Security "Trust Fund" (if anyone can "trust" that...) and several trillion more are owed to other domestic sources. Something like 1/3 or so is owed to foreign governments or corporations. China is currently the largest debtor with something like $1.2 trillion, I think. The Japanese, Brits and Brazilians are also large owners of the American debt. Who are the receives that money? That's a tough one to answer. In a general sense, we all do since that money is deficit spending that goes into the national budget, but the budget itself isn't evenly distributed, so one would have to take a look at that to see who gets what. By and large, things like medicare/medicaid, social security and the military are the largest beneficiaries of the U.S. budget. Recently a big chunk of money went to bail out our banks, but they are supposedly paying that money back. It still results in a net loss for the nation, depending on how one counts things up. In my opinion, the trillions taken from social security are simply a tax. Nobody is going to see that money ever again. As such, it's a tax on the youth to pay for the retirement of their elders, especially since the average person getting social security takes much more from the system than they put in, adjusted for interest. The vast majority of the money spend on the military goes to the largest few military contractors. The money spent on medicare/medicaid and social programs does largely go to actual citizens, though that seems to upset a lot of folks, even though from what I understand the majority of those people are children or also elderly, so they can't fend for themselves.
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Dubai wrote:Thanks Geeman for such an explanatory reply.
Can you please explain me who pays this national debt and who is the receiver.
Thanks. The government is responsible for the debt; it is payed from the treasury. The sources of revenue for the treasury are several, including tariffs on trade and taxes on income. In effect, it is the persons and corporations who are taxed who pay the debt. Liquidation of assets is, of course, another way to retire debt, but that is seldom done, since many of the assets are worth more for the revenue from taxable income they can facilitate than their cash value. Besides what is in the budget, which includes operating costs and services, a significant portion of the debt is in interest bearing bonds issued by the treasury. In effect, the holders of the bonds are the receivers. Among those holders are individual citizens, private corporations, private banks (especially the federal reserve system of certified banks), and foreign governments. As long as the revenue generated from programs funded by this borrowed money exceeds the interest owed on the bonds, it is all good, and it is safe to treat this debt as revenue, for the short term. From an accounting point of view, another significant debt is the currency which is issued as a promissory note from the treasury.
"Sometimes I sits and thinks, and sometimes I just sits." - Satchel Paige
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Rank: Advanced Member
Joined: 1/16/2011
Posts: 272
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Location: United Arab Emirates
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Thank you sooo much Geeman.
A friend in need is a friend indeed.
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