Economist Explains Debt Ceiling - myfoxcarolinas.com

Economist Explains Debt Ceiling

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Lawmakers decided to offer a short-term debt ceiling increase Thursday. But some say they still don’t understand how it would affect them.

“You talking about the freezing parks?” asked Lancaster, SC resident Audriey Curry when questioned about exactly what a debt ceiling is.

Another resident instantly admitted having no idea what it meant.

“I’m not sure what that all entails,” Deonne Hayden said.

Those were pretty common answers but Winthrop University economist Dr. Laura Ullrich says it’s comparable to raising a limit on a credit card without fully taking care of the balance.

“[It’s] a limit to how much debt can be issued by the federal government,” Ulrich said. “The government issues a bond every time it spends more money than it receives in revenue.”

The government hits that debt limit on October 17, 2013. Negotiations are underway to raise the debt ceiling for six weeks.

David Franklin of Rock Hill, SC said the federal government needs to cut costs so it doesn’t need to keep raising its debt limit.

“It’s as if I were to increase the limit on my credit card without paying it off. My wife and I pay off our credit card at the end of every month,” Franklin said.

According to a recent Fox News poll, 62% of voters taking the poll want Congress to raise the debt limit only after agreeing on major government spending cuts.

Ullrich said raising the debt limit would affect future spending but not for this year’s budget.

“If we cut spending today that would go into effect in the next fiscal year, she said. “If we don’t raise the debt ceiling by October 17th, the federal government won’t be able to pay bills it has already agreed to pay.”

Ullrich said it is unlikely the federal government will cut social security payments because that would be unpopular. However, it would have to make cuts somewhere.

Those cuts could mean the government would not be able to pay interest on its debt.

“We borrow about five percent of GDP every year,” Ullrich said. “Gross Domestic Product is how we measure whether or not we’re in a recession. If we had a five percent dip in GDP that would send us into a very significant recession.”

Ulrich said the drop could have a negative affect on the country’s credit rating which may cause an increase in future interest rates. A higher rate would cause the government to spend even more for borrowed money. That would force the government to either not borrow, cutting spending on other obligations or raise taxes to make up the difference.

She says the debt ceiling has been raised 79 times since 1940 and says it’s an ongoing issue that won’t be resolved until the debt ceiling is made a part of the budget process.

“The decision of how much money should be spent should be dealt with during the budget process, Ullrich said. “Not with the debt ceiling.”

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