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The U.S Debt Ceiling - Term Paper Example

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The U.S Debt Ceiling Name: Institution: The U.S Debt Ceiling The U.S. debt ceiling is a lawful method of restricting the amount of national debt, which can be issued by the American Treasury (Levit et al., 2013). It is also known as the debt limit (Abotalaf, 2011)…
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The U.S Debt Ceiling
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The U.S Debt Ceiling

Download file to see previous pages... In essence, it can just limit the Treasury from settling expenditures once the limit has been achieved, but which have already been permitted and appropriated. When the debt limit is normally reached devoid of any raise in the limit having been passed, the Treasury has to use extraordinary measures to provisionally fund government expenditure and responsibilities till a resolution can be reached. The U.S. Treasury has never, in the past, reached the level of wearing out extraordinary actions, leading to a default, even though the Congress, on a number of occasions, seemed like it would permit a default to occur (Masters, 2013). Managing of the U.S. public debt is a significant aspect of the macroeconomics of the country’s financial system and economy, and the debt limit is a restraint on the Treasury’s capacity to run the United States economy (Abotalaf, 2011). However, there are talks on how the U.S. financial system should be controlled, and whether a debt limit is a suitable method for restraining government expenditure (Abotalaf, 2011). This paper will discuss the consequences of debt ceiling in the United States economy, how the country got there and how they can get out of it. What the United States Got to the Current Debit Ceiling In Article I, Section 8 of the American Constitution, only the Congress can consent to the loaning of money by the United States on credit (Levit et al., 2013). From the independence days of the U.S. till the early 90’s, the Congress openly consented to every singled debt issued (Masters, 2013). To offer more elasticity to support the U.S.’s involvement in the First World War, the Congress modified the technique through which it legalized debt in the 1917, 2nd Liberty Bond Act. Under this law, the Congress created a summative limit also known as a “ceiling”, on the overall amount of fresh bonds, which could be issued (Austin et al., 2012). The current debt limit is a summative limit relevant to almost all national debt, which was significantly created by the both the 1939 and 1941 Public Debt Acts that have consequently been amended to transform the limit amount (Abotalaf, 2011). From time to time, political disagreements occur when the Treasury informs the Congress that the debt limit is almost to be reached (Masters, 2013). When the debt ceiling is achieved and pending a raise in the limit, the Treasury can use "extraordinary measures" to seek extra time before the limit can be increased by the Congress (Austin et al., 2012). The U.S. has never got to the level of a default where the Treasury was not able to pay United States debt requirements, even if it has been close on a number of occasions. The only exemption was in the 1812 War when a number of areas in Washington D.C., and also the Treasury, were burned to the ground (Levit et al., 2013). The U.S. reached, in 2011, a crisis level of close to a default on public debt. The holdup in raising the debt limit led to the initial downgrade in the U.S. credit ranking, a quick plunge in the stock market, as well as a raise in borrowing expenditure. Another debt limit crisis developed in early 2013 when the ceiling was reached once more, and the Treasury assumed extraordinary measures to evade another default (Levit et al., 2013). The 2013 debt limit crisis was settled, for now, on 4th February, 2013, when the President consented to the No Budget, No Pay Act and also delayed the debt ...Download file to see next pagesRead More
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