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Everything You Always Wanted to Know About the Debt Ceiling and Fiscal Cliff, But Were Afraid to Ask

Updated on October 27, 2013

Obamaconomics: Debt Ceiling, Fiscal Cliff...Bankruptcy

The rise of "Obamaconomics has resulted in a near tripling of the National Debt and a doubling of the Budget Deficit since he was elected President.

What is the Fiscal Cliff? Everything You Need To Know

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This article is about everything you always wanted to know about the fiscal cliff, the debt ceiling and Obama but were afraid to ask.

What is the Fiscal Cliff?

In 2011 the Budget Control Act passed a law that required the federal government to slash federal spending by $ 1.2 trillion over ten years from January 2013. It is a combination of both spending cuts and tax increases mandated by law to take effect if President Obama and the Republicans could not mitigate their differences on how best to reduce the budget deficit and total debt of the nation.

What is the Debt Ceiling?

Simply stated, the debt ceiling is the legal limit that Congress has placed on its own borrowing. The debt ceiling is a number declared by congress to be the limit to what level they can spend money on the business of government. In the event that the federal debt reaches this pre-determined debt ceiling number the government, by its own decree and by definition cannot borrow additional funds to finance its continuing operations, thereby triggering a government shutdown, as has now happened. In addition to this state of affairs, the government may delay payments or stop payments to their creditors, employees and suppliers. In a worst case scenario, the government may even default on payments to creditors, which would result in credit implications on its credit rating.

Find out how much debt America has by clicking here.

Raising the debt ceiling, which has been done once before in the spring of 2012 and is being considered now [October 2013] does not give the government the authority to spend money on new items. It only allows it to borrow additional funds to pay for spending decisions that have already been authorized by Congress, and not new spending. As it currently stands, Congress has the authority to raise the debt ceiling to new levels but has thus far elected to not grant permission to the government to raise their spending levels and the discussion continues.

What does the Debt Ceiling have to do with the Fiscal Cliff?

The debt ceiling has no relation or impact on the budget, the deficit, or the fiscal cliff. The debt ceiling is the pre-set limit of spending authorized by Congress. The budget is the amount of money allocated for annual spending on all programs. The deficit is the shortfall between annual revenues of the government and annual spending of the government.

If Congress chooses to raise the debt ceiling that will not affect the budget, the deficit, or the fiscal cliff, but will contribute to an increase in the national debt, if the government spends that money.

In the spring of 2012 we went through a debt ceiling issue where the government went to Congress to seek an increase in that ceiling or level of spending approval, and we are now going through the same thing in October 2013. That fight between Congress and the government ended amicably though compromise and the debt ceiling was increased to its current level. Now the government finds itself in the same bind only eighteen months later, but this time the government has been shut down due to the inability of the players to reach consensus and compromise.

The current budget battles in the House and Congress between Democrats and Republicans is not going to be settled any time soon, hence the shut down. Both parties have dug their heels in deep and apparently won't budge in their positions. Their stubbornness is hurting millions of Americans, and the most vulnerable in society - those on social assistance, the aged, the needy, the ill, and the disadvantaged - and there appears to be o solution in sight.

In the meantime people must continue to living their lives and paying their bills, but with most of federal employees on furlough it is a certainty that many will use up their savings accounts and possibly lose their homes while the House and the senate debate who is right and wrong.

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