Statutory Debt Limit

  

Categories: Credit

If you thought your debt was bad, don’t worry. The U.S. has you beat.

It’s been racking up the national debt since the 1930s. It was $43 billion in 1940...half of GDP output that year. Fast-forward to 1960. It’s $286 billion, again about the equivalent to half of GDP that year. It exploded in the 1980s, and just kept going. In 2018, the U.S. national debt was a whopping $21,516 billion (that’s $21.5 trillion), which was more than the total GDP of 2019 (105% of it, to be exact).

This begs the question: is there any limit to the national debt?

The answer: yes. The statutory debt limit, a.k.a. the “debt ceiling.” Congress sets the statutory debt limit: the limit of the amount of debt that the U.S. can take on to fulfill its legal obligations. The U.S. government has to cover Social Security, Medicare, tax refunds, military salaries, and any interest payments on outstanding debt (at least the interest payments). That means the U.S. can borrow money to pay for all of that...but only up to the debt ceiling amount.

How easily is that limit moved? Well, it’s been moved almost 80 times in the last 60 years, so...you do the math. Pretty often.

Why do they keep raising it? Because if they didn’t, the U.S. government would fall short of its financial obligations...and that’s just not an option. Stability is everything. Reputation is everything. The U.S. dollar has to keep up appearances, even if it costs trillions of dollars.

Now put those hands in the air, and raise that ceiling...like it’s 1990, or 1962, or...any year, really. Pick your favorite.

Related or Semi-related Video

Econ: What is a Budget Constraint?2 Views

00:00

And finance Allah shmoop What is budget constraint Oh a

00:07

budget is that thing your financial advisor keeps telling you

00:10

to make figure out how much you have to spend

00:12

and where you want to spend it and that's it

00:14

A constraint Is that feeling You get your wasteland after

00:17

a trip to the Happy have her bountiful buffet Just

00:20

can't eat another bite So put those concept together Budget

00:24

constraint on Well that's what this video is about A

00:26

budget that gets that feeling around its middle right It

00:28

just can't eat another bite Theo It's the last Friday

00:34

of the month and well you don't get your next

00:36

paycheck until Monday They're seventeen dollars in your bank account

00:39

You have thirty three in your pocket and fifty total

00:41

to your name But you've got a big date tonight

00:44

You can either take your date Teo Aunt May and

00:46

three the revenge Or you can probably just squeeze out

00:49

dinner for two at the PFC etchings And that is

00:53

at least as you only drink water and don't order

00:55

APS desserts But you can't go to the movies and

00:58

get dinner You have to pick one or the other

01:00

the concept of budget constraint attacks your love life Budget

01:04

constraints described the purchasing choices people have to make when

01:07

they have a limited income in economic circles The budget

01:10

constraint problem is usually posed as a choice between two

01:13

items This procedure allows economist to do their favorite activity

01:17

Make graphs Your brother is coming home after being in

01:20

a coma for three years He's not actually out of

01:23

the coma but his insurance ran out So you're going

01:26

to bring him home and let him keep a coma

01:28

in the living room Your family decides to celebrate the

01:31

homecoming anyway and they put you in charge of decorating

01:33

the house as if he notices you narrow your decoration

01:37

choices to two items you think are perfect for this

01:39

mccobb situation You can pick from balloons shaped like colostomy

01:43

bags and streamers that look like the chords of ivy

01:46

machines Well the colostomy balloons cost five dollars each and

01:50

the ivy streamers cost fifteen dollars each You have ninety

01:53

bucks to spend well There are all sorts of combinations

01:55

of purchases you can make You could buy eighteen balloons

01:58

and no streamers Are you Goodbye six streamers and no

02:01

balloon See they both total ninety bucks Or you could

02:03

buy a combo like two of the streamers and twelve

02:06

balloons or maybe four streamers and six balloons And this

02:09

is presuming you're going to spend all ninety dollars well

02:12

graph all the choices and the graph represents your decorating

02:15

budget constraint It outlines what's called your opportunity set I

02:19

either possible situations that you could choose from Well any

02:22

time you buy something when you spend an amount of

02:24

money you give up the chance to buy all the

02:26

other things you could have bought with that money for

02:29

the coma party Well each stream or you buy for

02:32

fifteen box means there are three five dollar balloons you

02:35

can't buy the opportunity cost for purchasing one decoration is

02:39

that you'd necessarily have less dote up Spend on the

02:41

other decorations It's the price for dealing with a budget

02:44

constraint situation another concept important to a budget constraints situation

02:49

Marginal utility Well this idea measures the added value you

02:53

get from acquiring one mohr of something like Take the

02:56

coma party situation You buy only balloons eighteen balloons and

03:00

no streamers What What's the added benefit of that eighteenth

03:03

balloon Does it make the party that much more festive

03:07

Well but then buying only seventeen balloons Well does Yoon

03:10

really no good You still can't afford a fifteen dollars

03:12

streamer Buying seventeen balloons instead of eighteen only saves you

03:15

five bucks But if you buy fifteen balloons instead of

03:18

eighteen well that allows you to purchase a streamer Well

03:21

if you want to handle the situation like an economist

03:23

you'd graft the total for festive nous of the party

03:26

you to sign each decoration a quantitative festive nous kwo

03:29

shen or index Are questions better there Yeah Q F

03:32

Q work Well you take into account that there's a

03:35

diminishing return for conflict with each added balloon Well the

03:38

first balloon in a room makes AH room much more

03:40

festive Going from zero balloons Toe one balloon takes a

03:43

situation from just sitting around with a guy in a

03:46

coma to a party However the eighteenth alone in a

03:49

room is hardly noticeable The previous seventeen balloons have already

03:52

done most of the work of creating that party atmosphere

03:54

Rock on baby well graphing the cost of each decoration

03:57

and the various festive quotients And economists can figure out

04:00

the optimal balloon to streamer ratio maximizing the total party

04:04

vibe But Keating within you know your budget constraint Well

04:07

by measuring the marginal utility of each item you can

04:09

choose among your opportunity set Which combination of balloons and

04:13

streamers gets you the most utility That is the combo

04:16

that best decorates the house for the money Not that

04:19

your brother is going to notice but we're just saying 00:04:26.349 --> [endTime] Hundred and tasty

Up Next

Econ: What is the Federal Budget?
0 Views

What is the Federal Budget? The Federal budget is the US government’s list of spending allocations for a designated year. It includes domestic an...

Find other enlightening terms in Shmoop Finance Genius Bar(f)