What are Debt ceiling?

04 Mar, 20242 mins read
Glossary
What are Debt ceiling?

What is a Debt Ceiling?

The debt ceiling is a legally imposed ceiling on the entire debt that the federal government can legally acquire to pay for its operations. It is imposed by Congress. It refers to the greatest amount of unpaid debt that the federal government is allowed to take on to carry out its responsibilities, such as paying bills, servicing its present loans, and offering funds for several projects and services.

The concept of a debt ceiling was first put forward by Congress in the early 1900s as a way to control borrowing by the government. The debt ceiling was lifted multiple times through the years to satisfy the federal government's increasing demands and manage financial challenges including wars, major spending projects, and downturns in the economy. The Treasury Department lacks the ability to sell fresh debt when the debt ceiling has been met so as to fund government expenditure that surpasses the maximum allowed.

At end-September 2023, India's external debt was placed at US$ 635.3 billion, recording an increase of US$ 6.4 billion over its level at end-June 2023 Economic aspect: Financial markets and the economy might be impacted greatly if the debt ceiling is not increased. Because the Treasury would have to borrow additional funds to

 meet its debts, it might end in a government shutdown. A U.S. debt collapse could also harm confidence in investors, begin an economic depression, and possibly send the nation into recession.

Political aspect: the debt ceiling often stems from party-based disagreements among politicians about fiscal policy objectives, spending limits, and strategies to decrease the deficit. Political standoff and the potential of default are concerns created by the long and contentious debt ceiling discussions. The debt ceiling has often raised concerns and fluctuation in fiscal policy in recent years. While short-term fixes like bans or delays have been used to prevent approaching crises, permanent solutions to basic issues in the federal budget are still difficult. The debt ceiling is a complex and controversial topic with broad implications for the financial system, the political system, and the economy. Though the government has to raise the debt ceiling to fulfill its responsibilities, to put the entire country on an affordable route forward, authorities have to solve core budgetary difficulties

 

 

 

 

 

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