What is the debt ceiling exactly? It’s a cap set by Congress on the amount of money the federal government may borrow. The limit applies to debt owed to the public (i.e. anyone who buys U.S. bonds) plus debt that the Treasury owes to government trust funds such as those for Social Security and Medicare.
Why does it need to be raised? The debt ceiling needs to be raised periodically because both parties in Congress have approved tax cuts and spending increases over the years, knowing full well they will add to deficits. By doing so, they increase the country’s future borrowing needs.
How high is the debt ceiling now? The ceiling is currently set at $16.394 trillion. The country’s borrowing hit that mark on Dec. 31, 2012. As a result, Treasury can’t borrow any new money in the markets. So it has begun to use “extraordinary measures” to temporarily stave off the risk that the country will default on any of its obligations.
What are “extraordinary measures” and how much time can they buy? Treasury has four options, which combined can raise $200 billion. The biggest of them is to temporarily stop reinvesting federal workers’ retirement savings in special-issue short-term bonds. Treasury has said that normally $200 billion can cover federal borrowing needs for about two months. But how much it buys this time around remains uncertain.
What happens if Congress doesn’t raise the debt ceiling in time? It’s impossible to say with certainty. But generally speaking, nothing good will come of it. Treasury would not be permitted to borrow. So it would only be able to pay those bills for which it has enough revenue on hand. Problem is, there won’t be enough revenue on hand to cover the payments due on any given day.
So who would get paid and who would get stiffed? Treasury would be forced to make legally questionable decisions, in essence, picking winners and losers.
If the debt ceiling isn’t raised in time, will there be a government shutdown? Not technically, but effectively it may feel like a partial one. By contrast, if the debt ceiling isn’t raised in time, the government remains open and Uncle Sam has revenue coming in to pay for government services and agencies. Just not enough revenue to pay for everything.
What’s all the noise about the 14th Amendment? If Congress fails to raise the debt ceiling, some believe the president could choose a “nuclear option” and invoke the 14th Amendment. That amendment states: “The validity of the public debt of the United States, authorized by law … shall not be questioned.” By invoking the 14th Amendment, the argument goes, Obama could direct the Treasury secretary to keep borrowing in order to pay the country’s obligations. The White House has rejected the suggestion several times. But minds may change, experts say, if the country is really on the brink of default. It would, however, be risky politically.
Precious metals have always been a safe haven for investing in uncertain economic times. Precious metals are assets that will never lose their value. They are not subject to systematic risks as fiat/paper money and hedge/protect your hard earned wealth against inflation and other threats of devaluation. Cornerstone Asset Metals was established to help guide investors safely in and out of the precious metals market.
Learn more about how buying gold and silver today is a smart move for your investment portfolio.
» Contact Cornerstone Asset Metals today to learn more about buying gold and silver as an investment.
» Read our article: Why Silver is Going Up Today?
» Read our article: Why Gold is Going Up Today?
Past performance is not an indication of future potential values.