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DM 65 - What is a debt ceiling

What is a debt ceiling? It's Jon from Financial MD, welcome to today's Didactic Minute.

You've heard about it in the news I'm sure, somewhere, I would think, although, of course, you are a doctor so there are probably a lot of things that you don't know about that are going on in the real world because you're so deep into schedules and rounds and patients and academia and all that stuff. So I'll fill you in real quick. For the last couple of months, we've known that to borrow more money as a country which apparently we need to do, so says one side of the aisle, we have to raise the debt ceiling. So it's like you have a credit card. They give you a certain credit limit. Three thousand dollars a month; that's the most you can spend. If you try to spend more than that, your card will get declined. Well, essentially, that's what's going to happen as we try to borrow money from other countries. We are going to get rejected by Congress to do that because the credit limit has been hit, or the debt ceiling, as they call that. Right now, it is almost 30 trillion, I believe. I mean, after…really, after a billion, does it really matter? It's just numbers and zeros after that point. So, but, I say it does matter and that's why there's so much fight over it. The Republicans want to maybe raise that a little bit but also have some spending cuts with that which, okay, I get it. The Democrats apparently want to just raise the debt ceiling – no compromise involved – and so here we go. Round and round the road we go, and where it stops, nobody knows. Apparently, that has to be done by June 1st or some defaults will happen which will lower the credit score of the United States, which would happen to you if you were to spend over your credit limit, you'd start to get dinged on your credit score. So, in terms of people, that affects who's going to lend you money whether you can buy a house, whether you can get a mortgage; whether you can get other credit cards, car loans…any of those kinds of things. Same thing for a nation apparently. It's going to affect our ability to still borrow money and the value of the bonds that we issue. Right now, the United States is the most highly rated country in the world in terms of the value of our bonds. They're AAA-rated; the highest you can go. Theoretically, it's never happened before that could drop which could impact a lot of things and, you know, as some of the staunch positions on each side say, this could ruin us economically and drive us deep into the worst depression ever. So, will that happen? I don't know, but that gives you the gist of what's going on. They got to come to an agreement because that has to be voted on by Congress on how much to raise the debt ceiling if they do and that will definitely affect the economy. So, stay tuned. We'll see what happens.

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