30 July 2011

US Debt Ceiling: What is that exactly?

Time is running out. We still have 3 more days to the very decisive day of 2nd August 2011 for US politicians to reach an agreement to increase the US debt ceiling. Everyday we heard this word "Debt Ceiling" repeating be it via TV, radio, newspaper and social media, but do we exactly know what does it mean?
Once again, Finance Malaysia blog strive to provide the knowledge to public regarding the most discussed economic issue now. So, what is debt ceiling?

The debt ceiling is a cap set by Congress on the amount of debt that the federal government can legally borrow. The cap applies to debt owed to the public plus debt owed to federal government trust funds such as those for social security and Medicare.

Why US need debt ceiling?
With debt ceiling, US can only borrow to finance their budget with the limit given. This will put a stop on the amount US can borrow to avoid US from over borrowing, which is very dangerous for the economic health of US.

What is the current limit?
The current limit was USD 14.29 trillion, which was raised in Feb 2010. It was not the first time, yet it would not be the last. The first limit was set in 1917 with USD 11.5 billion. Since then, it has been increased nearly 100 times.

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