Debt ceiling Essay Example | Topics and Well Written Essays - 1500 words

Debt ceiling - Essay Example The researcher states that 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 s ituation 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. 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.... 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