Debt Limit 101: A Biz Kid Guide

If you believe the week’s hype, three syllables stand between us and the end of the world: debt limit. By now, you’ve read the headlines. You’ve heard the spin. You’ve seen the predictions of the end of the world if we do, and the end of the world if we don’t. Up for debate between various branches of the U.S. government is the idea of raising the debt limit. So what is the debt limit, exactly? Like most things that we bicker over, it’s complicated. Here’s the situation in a nutshell:

The debt limit, a.k.a. the debt ceiling, is the maximum amount of money that the U.S. government is allowed to borrow to meet its financial obligations. In simpler terms, it’s how much debt we’re willing to go into to pay back people we owe.

Those who say we should raise the debt limit have the following to say:

1.     It keeps thing calm.

Supporters of raising the debt limit say that it’s a must to avoid defaulting on the U.S. government's bills. They argue that failing to raise the debt limit could lead to a loss of confidence in U.S. Treasury bonds, higher borrowing costs, and negative impacts on the economy.

2.     We need to pay back what we owe.

Raising the debt limit allows the government to pay for expenses that have already been approved by Congress. It ensures that the government can honor its commitments like Social Security, Medicare, military salaries, and other essential programs.

3.     We need to keep the government running.

Raising the debt limit can help prevent a government shutdown. Without an increase in the debt limit, the government may be unable to fund its operations, leading to disruptions in public services.

4.     We must preserve trust in the good ole’ U.S. of A.

Supporters argue that raising the debt limit is essential to the nation's credibility. It shows our commitment to meeting our obligations. It reinforces the perception that loaning money to the U.S. in the form of U.S. Treasury bonds is a wise investment.

Arguments against raising the debt limit:

1.     It’s irresponsible to keep diving into deeper debt.

Opponents argue that raising the debt limit allows the government to continue overspending. They say that it is essential to address the underlying issues of spending and prioritize financial responsibility to avoid burdening future generations with reckless amounts of debt.

2.     It makes deficits the norm.

Critics argue that raising the debt limit sends a message that spending more than we take in is an acceptable habit. They believe that imposing a limit on borrowing can force the government to get its spending under control.

3.     It encourages wasteful spending.

Some opponents of raising the debt limit argue that not raising it provides incentives to cut wasteful spending, streamline government programs, and implement long-term budgetary discipline. They see it as a chance to address structural issues within the government's finances.

Can you see why the argument is so heated? It’s a situation of being darned if you do, darned if you don’t. Now, the question is: what will happen? Will the two sides find a middle ground, or default on our nation’s bills in a matter of days? Only time will tell.