WHAT THE DEBT CEILING IS NOT

"Raise the Roof!"

“Raise the Roof!”

The debt ceiling DOES NOT CONTROL SPENDING.

I put this in caps, not to be impolite, but to correct an egregious mistake the media has allowed certain politicians to propagate.

The debt ceiling is an arbitrary limit on the issuance of debt by the Treasury.  When politicians say they won’t raise the debt ceiling because they must stop out-of-control government spending- THEY ARE LYING!

The appropriations bill is what controls spending.  The appropriations bill has been approved by both Republicans and Democrats and determines how much money the government will spend over the next year, also known as the budget.

The debt ceiling allows the government to pay bills they already incurred.  That is why when politicians refuse to raise the debt ceiling, ratings agencies downgrade our credit.

Numerous fiscally irresponsible impacts are had when the people in Washington refuse to raise the debt ceiling.

Think of the debt ceiling like paying a student loan.  You already spent the money on education and now it is your responsibility to pay it back.  If you don’t pay back your student loans on time, it destroys your credit rating.  That means you will get denied when you go to lease your next car, when you apply for your next credit card or even if you rent a new apartment.  And when it comes time to buy a house, because you didn’t pay your student loans back on time, your mortgage will be at a significantly higher interest rate.  This may not seem like a big deal at first, but over time, the interest you pay is money you lose in equity in your home.  One’s home is usually their largest single asset which means your making less money on owning your home.

The same is true of the government.  When they threaten to not raise the debt ceiling, which by the way, they always will regardless of what they tell the media, it causes ratings agencies to give the U.S. a lower credit rating.  This makes it more expensive for the government to borrow.

This is a much bigger deal than you getting a higher interest rate on your mortgage because the amount of debt the U.S. holds is about equal to our total GDP.  GDP is like a person’s income.  If you take out a loan that is worth an entire year’s salary, you want the lowest interest rate possible because otherwise you will have less money to spend on other things.  Why would anyone pay banks more than they already take?

That is the reality.  When politicians threaten to not raise the debt ceiling, it is all smoke and mirrors.  Everyone in Washington knows that the debt ceiling will be raised regardless, it is just being used to get political concessions (such as giving less money to the unemployed).

It is wonderful to be fiscally responsible, but don’t tell your voters that is what you believe in if you are threatening to not raise the debt ceiling because all it does is cost tax payers more money.