Friday, September 30, 2011
Explanation on the US debt ceiling.
Let's say you have a credit card with a $2000 limit. Your credit card has almost hit its limit and you can't pay it off. You need to buy some food and pay the bills for this month and you have no choice but to pay it using your credit card. After you pay for these things, the credit card will be maxed out.
The debt ceiling is like a credit card. The US has maxed out the credit card on August 2nd.
You will be getting your check soon and you have to pay the rent. But the rent is $1000 and your check is only $800. So you know you'll be short by $200 ahead of time and the only option you have left is to contact the credit card company and ask them to increase your limit.
The debt ceiling legislation is trying to raise the credit limit.
Most of the time you can do this without an issue but politicians decided to say that borrowing money will not work out in the long term. So they are trying to lower the spending cost or raise the income before they can raise the debt ceiling.
Democrats want to raise the income by raising taxes but the Republicans want to lower the spending cost. They want to do something that will make everyone happy but they haven't found it yet.
So if the Democrats and the Republicans can't meet in the middle, and the US doesn't raise the debt ceiling, then they won't have money to pay all the bills. So they will have to figure out which bills to pay first with the money that they do have. Such as military bills or pay back the countries that they owe money to.
Just like if you don't have enough money, do you pay to fix the car? Or pay your medical bills first?
Now you're probably wondering what happens if the US doesn't pay? No one knows yet. Maybe other countries will lose trust in the US and will not let them borrow money anymore.