How Debt Ceiling Works

By • Nov 21st, 2011 • Category: Debt

The hot topic nowadays is about US Debt Ceiling rather it is also a political issue whether the debt ceiling issue should be raised or not. However, whatever the case may be but this current discussion is not good in any way for the world or the US economy. It seems that the US economy has been stressed out; the public is confused, since many people are losing their jobs more frequently than ever.

However, the question here is how the debt ceiling works or what actually debt ceiling is? In fact it is a restriction on the amount U.S. can borrow for handling the national debt. Currently United States has already under $14.5 trillion debt. In this way every taxpayer in the U.S. owes approximately $130,000. This is an enormous debt amount that the U.S. is facing. Now, the U.S. is going to lose its right on August 2, for further borrowing money over $14.5 trillion limit.

If this happens, the U.S. treasury would not be able to cope with billing they have to pay and therefore, they are working their paying plan for who to pay and who not to pay. Due to this debt ceiling the U.S. government will not be able to pay its current bills.

In this scenario, people are considering taking out their money from the banks, because in the event the U.S. debt ceiling is not raised, the government would go defaulter and they may pass special instructions to the banks. This is not too complicated, even a common person can understand that the U.S. deficit is going no where and everybody is giving his different opinions for cutting down the debt deficit.

U.S. would be facing grave consequences as it has been conjectured by everybody. This will severely harm the credit score of the U.S. government and investors are more likely be imposed elevated interest rates for the purchase of securities and as a result the U.S. borrowing cost will also be increased. This situation will make the U.S. debt crises worse in the coming years. It can also be imagined that how the world would react on the economy fall of the world’s strongest power.

There is no such kind of example found in the U.S. history that the government is not able to fulfilling their obligations. It is a matter of great concern for the U.S. that how they deal with the current debt ceiling crises.

However, in these tiring times, the importance of keeping a good credit score also becomes two fold for the U.S. government, since failing to keep with the reasonable credit score, the world will stop giving them any further loan before the fulfillment of the existing ones. The importance of credit score is very important especially for the U.S., since nobody is going to take risk giving debts to a country having bad credit scores. Not only the world would give any debt to the U.S. but also they would not sign any contract with them.

Normally, the credit score that is required for getting a loan is considered to be between in the range of 700-730. However, anyone should not put a ceiling achieving an even greater credit score for getting further conveniences in regard of getting higher debt amounts. Any one, a single person or a government can get good rates on their credit cards and loans in case their credit scores are higher. A good credit score can also lift any burden from the U.S. government’s shoulders or any single person from doing something extra for paying their debts, except taking good care of their credit transactions. If any government or a person can maintain a good credit score, they can pass a more relaxed and dependable life. No matter, how much better your credit score is, one must keep on trying to make his credit score even better.

However, these types of U.S. government economical crises also mean that they would have less tax revenue that would cut more budgets. Unemployment will also be increased. The U.S. would also not be able to fascinate international buyers. U.S. is also under a threat from the credit rating providers that in the event of failure in increasing the debt ceiling, the U.S. credit rate would be downgraded.

 How Debt Ceiling Works
Tagged as: , , , , , , , , ,

Email this author | All posts by

Leave a Reply