The debt ceiling is the legal limit on borrowing by the federal government.[1] Since the 1980s, the debt ceiling has been raised from $985 billion dollars to a staggering $14.294 trillion.[2] After the 2008 financial crisis, the United States government took a great deal of responsibility to help the U.S. economy recover. Through various bank bailouts, stimulus programs, Federal Reserve rescue packages, and other financial initiatives, the United States Government committed over 11 trillion dollars, and has invested 3 trillion.[3] This action, along with the accumulated debt from previous budget deficits, has left the United States with a staggering 99% debt-to-GDP ratio. Raising the debt-ceiling is one of the least enjoyable things that Congress does, but it has been done without much trouble plenty of times in the past. However, in this case, both parties saw this time as an opportunity to gain votes for the upcoming elections. Problems began within the government last April when the tea-party faction of the Republican Party demanded at least $2 trillion in spending cuts, if the debt ceiling were to be raised. A couple weeks later, the US Treasury announced that the debt-ceiling had been reached and that if the problem wasn’t solved by August 2, the country would default. Quickly, the issue evolved from finding ways to cut spending into a heated debate between partisan factions and their own ideologies. Republicans asked for major government spending cuts before agreeing to raise the ceiling, but they refused to increase taxes whatsoever. Meanwhile, Obama’s solution involved both increasing taxes and reducing government spending. Partisan politics and uncertainty harmed the reputation of the United States and the world economy as the deadline drew closer everyday. Negotiations persisted through August 1st, but eventually the two parties came to terms and an agreement was reached to raise the debt ceiling by $2.4 trillion[4].
The deal approved by Congress was a short-term deal that only prevented the United States from defaulting. As a result of the political uncertainty and the unbalanced budget that the government still had after the plan was passed, Wall Street suffered its worst losses since 2008. The Dow Jones industrial Average dropped 2100 points, 16%, from its year high and the United States long-term credit rating was downgraded for the first time in the history of the country. We believe that unilateralism in Washington by both the Republicans and Democrats harmed the economy more and that the debt-ceiling plan was a fiasco. The stubbornness of both parties to implement the policies they believe in put the economy at great risk, and the United States cannot afford to have this problem again. In order to solve this current economic crisis and save the economy from dipping back into a recession, the White House needs to work together with the House of Representatives to find a long-term deal, which should include budget cuts and tax raises.
Sources:
Eunjung Cha, Ariana. "What's the debt ceiling, and why is everyone in Washington talking about it?." Washington Post (2011), http://www.washingtonpost.com/business/economy/whats-the-debt-ceiling-and-why-is-everyone-in-washington-talking-about-it/2011/04/15/AFSS4R1D_story.html (accessed October 17, 2011).
Federal Reserve, Treasury, FDIC, CBO, White House. "Follow the money: Bailout tracker." CNN. http://money.cnn.com/news/storysupplement/economy/bailouttracker/ (accessed October 11, 2011).
Carlson, Margaret. "Obama, Boehner Look Smaller After Their Big Debt Deal: Margaret Carlson." Bloomberg. http://www.bloomberg.com/news/2011-08-03/obama-boehner-look-smaller-after-their-big-debt-deal-margaret-carlson.html (accessed October 12, 2011).
[1] Eunjung Cha, Ariana. "What's the debt ceiling, and why is everyone in Washington talking about it?." Washington Post (2011), http://www.washingtonpost.com/business/economy/whats-the-debt-ceiling-and-why-is-everyone-in-washington-talking-about-it/2011/04/15/AFSS4R1D_story.html (accessed October 17, 2011).
[2] ibid
[3] Federal Reserve, Treasury, FDIC, CBO, White House. "Follow the money: Bailout tracker." CNN. http://money.cnn.com/news/storysupplement/economy/bailouttracker/ (accessed October 11, 2011).
[4] Carlson, Margaret. "Obama, Boehner Look Smaller After Their Big Debt Deal: Margaret Carlson." Bloomberg. http://www.bloomberg.com/news/2011-08-03/obama-boehner-look-smaller-after-their-big-debt-deal-margaret-carlson.html (accessed October 12, 2011).
1 comment:
good job with this post guys. i most liked the ending part where you analyzed the debt ceiling situation and proposed a possible solution. i agree that the federal government needs to implement measures such as a new (lower) tax package immenently to stop the debt cycle and create investor confidence in the U.S. once again.
Post a Comment