avatarDavid O.

Summarize

Debt Ceiling Explained Like You’re 5 Years Old

In 13 points

Photo by Rameez Remy on Unsplash

1. Every country makes money and spends money

2. Good countries (in the money sense) spend less money than they make

3. Most countries are not good (in money sense)

4. The US has been spending way more than it makes

5. They can spend more because they borrow money and promise to pay it back in the future

6. But they will keep paying additional money to those who lend them money until the time they promise to return it

7. This additional money is known as interest (or yield)

8. The US keeps borrowing more and more money every year. But make less and less money in comparison

9. As an illustration, let’s say they borrow 15 and make 5 in Year 1. In Year 2, they borrow 50 and make 10. And the gap keeps growing

10. The US House of Congress is tasked to keep this borrowing from getting out of hand by stating a limit to how much “borrowed money” the country can have

11. In recent times, the US needs to borrow way more money than before. Mainly to pay the “interest” on the money they have already borrowed

12. When the US has reached the limit of borrowed money they can have, as stated by the House of Congress, the White House lobbies Congress to increase the limit of “borrowed money” they can have

13. The Congress almost always caves to the pressure of the White House. And they increase the limit of “borrowed money” the country can have. This is what is meant by raising the debt ceiling

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