StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Debt Ceiling Issues - Essay Example

Cite this document
Summary
The essay "Debt Ceiling Issues" focuses on the critical analysis of the problem of the debt ceiling. The debt ceiling is the limit to which debts can be borrowed. The debt ceiling as perceived in the United States is the maximum amount of debt that can be borrowed by the United States…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER94.5% of users find it useful
Debt Ceiling Issues
Read Text Preview

Extract of sample "Debt Ceiling Issues"

? Debt Ceiling Debt ceiling is the limit to which debts can be borrowed. The debt ceiling as perceived in the United States is the maximum amount of debt that can be borrowed by the United States in order to run its operations. The process through which debt is borrowed by the government is by issuing bonds. The government issues bonds in order to raise the debt and the holders of such bonds hold the position of a creditor. The bonds have a date of maturity and a rate of return, and these are held by individuals or organizations as available for sale as well. Due to the application of debt ceiling, there is a limit to the amount borrowed by the United States through such bonds, which means the overall deficit in the federal budget cannot exceed the debt ceiling therefore it can be said the overall spending of the government is limited to the extent of the debt ceiling. The topic of debt ceiling was selected because it holds significant importance in the current economic situation of the United States. After the recent debt ceiling crisis and the impacts of this crisis on the overall economy of the United States, the understanding of the concept of debt ceiling holds significant importance. The following paper would consider the importance of debt ceiling in the economy of the United States, the impact of debt ceiling on the economy of the United States and whether the application of debt ceiling is necessary.Before the debt ceiling was created in the United States, the President was free to make decisions regarding the overall borrowings by the US. The debt ceiling was created in 1917 in order to ensure the accountability of the debt borrowings by the US. Debt ceiling is important for the economy of the US in a number of ways. Following are some of the important aspects of the debt ceiling. In the presence of the debt ceiling, the regulatory authorities that are given the responsibility of assessing the need to borrow money would make their decisions after considering the debt ceiling. There would be control on the overall borrowings made by the United States. In the absence of the debt ceiling, the borrowings may spiral out of control in the wake of the ever increasing budget deficits and government spending, however in the presence of debt ceiling the scenario remains somehow under control. The debt ceiling does not only keep the overall borrowings in control but there are a number of other economic factors linked with borrowing that also come under control due to the debt ceiling. When the debt ceiling is reached while determining a budget, the regulatory authorities can use ‘extraordinary measures’ to raise the required finances in order to remain under the debt ceiling. Such extraordinary measures are not considered unless there is a genuine need to raise the finances such as for saving a part of the government to shut down. There is a limit to the amount of funds to be raised through such ‘extraordinary measures’ and if the regulatory authorities remain unable to raise the required amount of funds through such measures as well, a rise in the debt ceiling is considered.The debt ceiling also influences the extent of government spending. In the presence of debt ceiling, there would be a control over the government’s decisions regarding spending on its operations. Excess government spending may result in increased deficit in the budget. Since the deficit in the budget and government spending influence the overall economic activity in the country, it may lead to a steep rise in inflation in the country. Thus, debt ceiling is important to keep an active control over the borrowings made by the US and the spending made by the government.The debt ceiling is also important because it keeps the federal budget of the United States under control. The debt ceiling keeps the regulatory authorities from exceeding the borrowing limit and in order to meet the deficits in the budget, other measures are resorted to. In the recent past, the debt ceiling has caused a significant stir in the economy due to the increasing budget deficits in the United States. Even though there are a number of important aspects of the debt ceiling, it is being viewed as harm to the economy since there are not many venues other than borrowing available to be sought by the regulatory authorities in order to meet the budget deficits.Due to the increasing budget deficits and debt ceiling, consumers and investors are anticipating a downturn in the economy and the investment activity has also been impacted due to the recent debate regarding the debt ceiling. Therefore, it can be inferred that debt ceiling is important for keeping the deficits in the federal budgets in control but in case of necessary spending, debt ceiling may prove to be a hindrance. Debt ceiling has a significant impact over the federal budget and the extent of government and these two factors are the most important constituents of the overall economy therefore it can be said that the debt ceiling has a significant impact on the overall economy. Following are the impacts of the debt ceiling on some of the factors of the economy.The rate of inflation prevailing in a country depends upon a number of factors, such as; the overall government spending, the investment activity in the country, the interest rates and the overall consumer spending. Since the debt ceiling directly influences the overall government spending, it can be said that debt ceiling also impacts the rate of inflation. If the government is allowed to make borrowings without any limit, the budget deficit and spending may rise to such a level that may cause a hike in the rate of inflation. Therefore, it can be said that debt ceiling keeps the rate of inflation prevailing in the country under control as well.Interest rates prevailing in a country are the main determinants of the extent of economic activity. If the regulatory authorities decide to bring the level of inflation down, they might increase the interest rates in order to reduce the overall economic activity in the country. While, if the regulatory authorities determine to increase the economic and investment activity in the country, they may reduce the interest rates. If the national deficit and debts increase to a very high level, they may lead to reduced national savings and higher interest rates and resultantly lower investment activity. Therefore, by keeping the overall deficit and debt controlled, the debt ceiling helps the government in maintaining acceptable level of interest rates. Since all the elements of an economy are interconnected, a change in one influences the other in one way or the other. Any one aspect of the economy cannot be kept isolated from the other aspect. Any change in any aspect of the economic activity influences other aspects as well. Since the debt ceiling holds significant importance in the economy, it also influences the consumer spending, if not directly, indirectly. In order to keep the deficit in the budget limited to the debt ceiling, the regulatory authorities may opt for extraordinary measures. Such measures may include increasing the overall tax revenue of the country which would mean an increase in the tax rates (Underhill, 2000). Consumer spending is directly impacted by the tax rates. If the tax rates go high, the individuals are left with less dispensable income and therefore they consume less than what they would have consumed had there been no additional tax. Thus, debt ceiling does not only influence the extent of government spending or the federal budget, it also impacts the trend of consumer spending. If the perspective of consumers is taken into consideration, it can be said that debt ceiling has more negative impacts on the economy than positive impacts. The debate regarding the good and bad aspects of the debt ceiling is currently prevalent and this is one of the aspects that do not go in the favor of debt ceiling that it impacts the individuals in a negative way (Patterson, 2011). Even though the debt ceiling play an important role in controlling the government borrowings and spending, it has been raised a number of times. A small change is acceptable since there is a factor of inflation continuously prevailing globally and it keeps depreciating the values of currencies but a large rise in the debt ceiling may be questionable. A large increase in the debt ceiling may be due to a number of factors such as an exponential increase in the government spending due to the initiation of a new spending avenue. If it is seen statistically, the debt ceiling has been raised frequently and by a significant degree since the year 2001 and in the recent past, the rise has been very steep (Francis, 2011). There is a prevailing debt ceiling crisis which has raised a significant debate over the increase in debt ceiling. The deficit in the budget has risen to a point where the extraordinary measures would not be able to cater it and only government borrowing would be the solution to the problem. After it was announced that the borrowing authority of the US would be exhausted, the credit rating of the US bonds was downgraded. This led to an economic crisis which has been termed as debt ceiling crisis. Some of the experts are of the view that since the debt ceiling has been increased so many times, it should be removed altogether.It can be inferred from the evaluation of the importance, impacts and application of the debt ceiling that the increasing budget deficit and government spending have made it difficult for the regulatory authorities to keep a constant debt ceiling. Increasing debt ceiling repeatedly defeats the very purpose of the application of the debt ceiling. The government should assess the importance of debt ceiling and acceptable ways of decreasing the budget deficit and cuts in spending should be sought. Works Cited Francis, Davis. What the Debt Ceiling Means for Consumers. US News, 8 September. 2011. Web. March 27, 2012. Patterson, Scott. The debt-ceiling is taking a toll on the economy. USA Today, 31 July. 2011. Web. March 27, 2012. Underhill, Paco. Why we buy: the science of shopping. Simon and Schuster, 2000. Print. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Debt ceiling Essay Example | Topics and Well Written Essays - 1500 words”, n.d.)
Retrieved from https://studentshare.org/finance-accounting/1396512-debt-ceiling
(Debt Ceiling Essay Example | Topics and Well Written Essays - 1500 Words)
https://studentshare.org/finance-accounting/1396512-debt-ceiling.
“Debt Ceiling Essay Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.org/finance-accounting/1396512-debt-ceiling.
  • Cited: 0 times

CHECK THESE SAMPLES OF Debt Ceiling Issues

The United States Debt Crisis

Future Prospects and ConclusionRecently, the US government raised its debt ceiling to $14.... (US Debt Clock)The US debt ceiling has been raised 74 times, 10 of which have taken place since 2001.... Insolvency resulted from these liquidity issues in September 2008 and private lending froze completely in many significant debt markets.... From the paper "The United States debt Crisis" it is clear that Shadow Banking comprises of financial institutions such as investment banks which do not come under the category of commercial banks and hence were not regulated by the US federal government....
3 Pages (750 words) Essay

Government Debt and Global Competitiveness

If the debt ceiling isn't raised, lawmakers will have two choices: Either cut spending or raise taxes by that amount, or let the country miss payments on many of its legal obligations.... Treasury Extends debt ceiling Window to Aug 2.... Government debt and Global Competitiveness Name Texas A&M University-Commerce In partial fulfillment of the requirements for MKT 521 Professor Lloyd M.... US Government debt……………....
3 Pages (750 words) Essay

The Sovereign Debt Crisis in the Euro Region

It has been seen that once again the main issues related to the economic downturn has been caused by the Developed countries.... [Instructor Name] The Sovereign debt Crisis in the Euro Region The European dent crisis started in the late 2009, where the European countries had a fear of defaulting.... There was an agreement that had been signed by all the European countries that said that all of them would have to limit their spending and also reduce their funding of new business and existing markets through debt....
5 Pages (1250 words) Essay

The US Debt Ceiling

The paper "The US debt ceiling " states that generally, President Barack Obama has constantly argued that the debt ceiling should be raised and he will not debate on this matter.... debt ceiling is a lawful method of restricting the amount of national debt, which can be issued by the American Treasury (Levit et al.... This paper will discuss the consequences of the debt ceiling on the United States economy, how the country got there and how it can get out of it....
9 Pages (2250 words) Term Paper

The Role of Jubilee Debt Campaign in Finance World

The paper "The Role of Jubilee Debt Campaign in Finance World" look at the case of helping the poor nation and the moral issues that surround.... Debt which the developing world owes to the rich nation has been one of the greatest obstacles that have made it difficult for the developer would make good progress in addressing various issues that affect their development.... The problem of world debt has been a major obstacle to the development of the world....
12 Pages (3000 words) Term Paper

Effect of Debt Limit/Debate on Credit Rating of US

This report discusses debt limit or debt ceiling which can be defined as the legal limit on the total amount of gross debt that can be issued by the Federal government.... This essay talks that in Washington, the Government's debt limit has been the focus of heated debate.... This has been the case because Economists and Politicians argue that in order to be in a position to avoid economic disaster, the debt limit must be raised.... This paper will seek to provide an account of the potential effects of debt limit/debate on credit rating of United States....
8 Pages (2000 words) Research Paper

The US Sovereign Debt Crisis: Causes and Implications

It led to a major government shutdown when the Republicans and Democrats could not come up with a consensus on the federal debt ceiling.... One of the obvious solutions that most governments employ is quantitative easing which involves the printing of more money to ease the issues with sovereign debt threats (Amadeo para 7).... The paper "The US Sovereign debt Crisis: Causes and Implications" states that the Sovereign debt crisis creates some degree of uncertainty in the bond markets and creates pressures on the interest rates....
8 Pages (2000 words) Annotated Bibliography

United States National Debt Ceiling

The paper 'United States National debt ceiling' focuses on a legislative mechanism to fix the upper limit of the national borrowing.... The whole debt ceiling is issued by the Treasury of the country.... The debt ceiling includes intra-government accounts and public debts.... The author states that fixing the debt ceiling is a significantly important macroeconomic factor for the country.... The debt ceiling does not directly manage the national deficit....
7 Pages (1750 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us