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  • The debt limit is kind of a financial weapon of mass destruction chained to the United

  • States government by the United States government.

  • Confused? Then it's time for The United States debt limit Explained.

  • To understand the debt limit you need to know the US splits financial responsibility between

  • the president and congress.

  • The president has two jobs when it comes to money:

  • 1. Collect taxes and... 2. Spend those taxes to run the government.

  • This might give you the impression that the president, with regards to money, is all-powerful.

  • Especially when you hear news reports on 'the president's new budget' or his plan to 'raise

  • taxes on haberdashers' or 'lower taxes on apiarists'.

  • But reality is just the opposite and the president is the one who takes orders.

  • From whom?

  • Congress.

  • Congress has the jobs of setting the tax level and determining how much the government will

  • spend by writing a budget.

  • So while the president does get to submit budgets to congress, and asks for changes

  • in the tax level, these are just requests that congress doesn't have to pay attention

  • to.

  • Congress can add or subtract anything they want from the president's budget or throw

  • it out entirely and write a new one. The same goes for the level of taxes.

  • So congress decides what it wants: bridges, tanks, buildings, courts, robots on Mars,

  • robots on Earth, National Parks, whatever and approves a budget with that stuff in it.

  • Once approved the president's is required by law to spend the money Congress listed

  • in the budget and pay for it using the taxes that congress set.

  • As long as more taxes come in than spending goes out everything is fine.

  • But, almost always, Congress puts more stuff in the budget than they cover with taxes which

  • means the president must borrow money to cover the difference.

  • In most countries the story ends here because if their legislatures approved more spending

  • than they have income, they've also implicitly approved the necessary borrowing -- but not

  • in America. Here Congress *also* limits the total amount of debt the United States can

  • have.

  • A debt limit sounds like a good idea until you see the real-world consequences of these

  • two branches of government interacting.

  • As the total amount borrowed gets closer to the limit, Congress usually points to the

  • president and acts shocked, *shocked* that his reckless spending has brought us so close

  • to the debt limit that they, reasonable, prudent Congress have set.

  • And while it's technically correct that the president has borrowed this money, congress

  • has forced him to do it, by approving a budget that the president is legally obligated to

  • spend without also approving the necessary taxes to cover that spending.

  • So the debt limit fight is essentially the government version of the playground favorite:

  • 'stop hitting yourself' except with added terror for everyone watching.

  • For, it's important to note, the debt limit is not about future spending -- it's not a

  • credit card on which the limit will be raised so a crazy government party can be thrown

  • -- the debt limit is about paying bills already incurred.

  • For example, the government hires a company to repave a federal highway. But if the US

  • is at the debt limit, when the company asks to be paid after the work has been done, the

  • government can't. This shakes trust in the US and since large parts of the global economy

  • depend on the dollar being trust worthy, messing with that trust is a big deal.

  • But there is a way out: Congress can raise the debt limit and, because of the aforementioned

  • terror, they always have.

  • Soif not raising the debt ceiling is potentially disastrous and the solution is simple and

  • always taken in the end: *why does this debate last months‽*

  • Because: politics.

  • The debt limit isn't in the constitution, congress created it themselves and from their

  • point of view, the debt limit is awesome because:

  • 1. It creates a problem that 2. Congress can (technically) blame on the

  • president who 3. Needs the solution that only they can provide

  • Congress gets to use the threat of mutual financial self destruction as leverage in

  • negations that they benefit from extending until the lastpossiblesecond.

The debt limit is kind of a financial weapon of mass destruction chained to the United

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The Debt Limit Explained

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    Zenn posted on 2014/02/06
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