Mellody Hobson explains the debt ceiling in today’s “Money Mondays” segment.
Let’s start at the beginning. A common misperception is that the debt ceiling is the amount of money the government owes, and that raising the ceiling means increasing the federal debt. The federal debt is what it is…$16.76 trillion as of September 30th, according to the Treasury department. By contrast, the debt ceiling is the amount of money the government can borrow in order to pay that debt. That limit is currently $16.7 trillion, although technically the government already exceeded it in May. So the debt and the debt ceiling are different, but raising the amount the government is allowed to borrow will of course end up allowing the country to go deeper into debt, at least temporarily.
How is that money “borrowed” by the government and from whom are they borrowing?
You and me! And other people and countries all over the globe. Plus, in recent years, the Federal Reserve has emerged as a major buyer. The U.S. government borrows money by selling Treasury Bonds…and it uses the money it makes from selling those bonds to pay off existing debt and borrow additional money.
Should the government just cut federal spending?
That’s logical but could be disastrous right now because the economy is still recovering. According to the Congressional Research Service, cutting federal expenditures would mean discretionary spending would be drastically reduced—that includes defense, education and housing. Social Security would be threatened, taxes would need to rise and the economy would likely go into recession as a result. So a meaningful cut in spending is not a good option at this time.
What’s so important about October 17th?
That’s the day officials say the U.S. will run out of money. Defaulting on our debt would mean the government’s credit rating could be downgraded again and cause a default on U.S. Treasury bonds, which many Americans have as part of their retirement or investment portfolios. The dollar could crash. Not to mention, the low interest rates we’ve enjoyed for home-buying, credit cards or business loans would also rise very quickly. This debt issue has the potential to set our economy back into a tailspin. And not just us…Treasury bonds and the dollar are cornerstones of the global financial system, so it could affect the whole world if we don’t address it. It’s basically a financial doomsday scenario.
What do you think is going to happen?
I guess we’ll find out in a few days! But the debt ceiling is changed by Congress. They can either pass a standalone bill or include it in another piece of legislation as an amendment. Congress originally created the debt ceiling in 1917 during World War I in an effort to limit federal borrowing. Since 1960, the debt ceiling has been raised 78 times. It’s a simple matter of amending the law, but that means coming to a compromise in Congress.
And this is where the government shutdown comes in.
Exactly. There’s a standoff in Washington as Republicans and Democrats argue about the federal budget. Hopefully, they’ll at least come to a temporary agreement before Thursday.
Mellody Hobson is President of Ariel Investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.
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This Week’s Celebrity Instagrams (10/15-10/21)
31 photos Launch gallery
1. Just a NY girl with BIG dreams....
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2. HAPPY CHILDREN=QUALITY PARENTING. We don't always see eye to eye on everything and that's normal. We're human beings. But we come together and do it right for what's important, the kids. We are not enemies, we are parents. And we are parents 1st. S/O to @monyettashaw for making Mason's bday memorable. S/O to @itscrystalsmith at home taking care of our other lil' Prince. ❤️❤️❤️ THIS IS WHAT CO-PARENTING LOOKS LIKE. #Blessed #Happy #AboveTheDrama #BiggerThanUs
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3. So happy to finally be able to share with you all that I’m the new Global Brand Ambassador for @Revlon! Follow my day on RevlonSnaps. Yay! Choose Love, Everybody! #RevlonXCiara #chooselove #ad
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4. Glam on point!!!@makeupbymotoko & @shaylinjoneshair #easybreezy @lifetimetv #beachesmovie #january2017 😘
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5. ✨True love ✨📸: @jessiemarrerophotography
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7. Today was not easy..but by the grace of God we all got through it. Words cannot express our gratitude for all of your Prayers, Positive thoughts and Support for us throughout the years. Tommy will be missed but most certainly never forgotten...And PLEASE don't ask "Where's Martin?.." he was there too...just not in this picture. Lol! God bless you all.. #LoveConquersAll #MartinShow
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9. West coast get ready for #RockyHorror. I will be live tweeting again. #letsdothetimewarpagain
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10. #THEKEYS pre order yours now ... Available everywhere #NOV22 #WeTheBest 🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑🔑
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11. We about to ROCK at #KCABlackBall!! All for our life-changing effort to end 🌎 AIDS.
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12. Today's #SNAPJACK is brought to you by @yazzthegreatest 😂😂😂💋💋💋
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13. Damn girl you kinda old to be headed to the Go Go. You coming in at the age they leaving. LMAO
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14. Daddy daycare B-Boxin with @acewellstucker @shopraisingace
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15. #FBF Naviyd & URV "LIL MONSTERS"
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16. HAPPY BIRTHDAY TO ONE OF THE BIGGEST LEGENDS IN OUR HIPHOP HISTORY! @snoopdogg CONTINUED BLESSING AND LOVE FAMILY!!!!! REAL OG!
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17. Thank you for a beautiful night VSU! Let's do it again! #HOMECOMING
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18. Had a great time this morning with my familia Erica, Griff & Truth!!
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19. Check out my interview on @essence facebook live. #inmyownwords #nycpromo #day2
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20. #She💋 #tbt #TheCoveAtTheAtlantis #DawgPawsAndAll
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21. Bae #retailtherapy
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22. Why me and @coryhardrict got the same pose... and notee... new mouth #naked
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23. When my husband is my personal 'hype-man'! it kills me every time! 💜😂 #WHATNOW #lostfiles📷
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24. Diggy Simmons
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25. Hand full of @jacquieaiche 💙💎💍 @esnail_la 💅🏾
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26. SuperSoulers! You can watch my interview with Carl Lentz live from my Facebook page, tomorrow at 11a ET| 8a PT. #SuperSoulSunday
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27. 💋 .. When the friendship is easy like Sunday morning. ☀️
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28. Sunday mornings are the best........... hugs and cuddles with my angel
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29. #huggar16 #hellohuggars
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30. My gym is everywhere!.. #RnBMoney #TheGeneral 📸: @twelvepastseven
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31. Nothing I would rather be doing... Rocko setting up our movie, Romelō working on a puzzle & Laiyah singing and sharing all she's learning at school... I'm so grateful for the joy they've brought into my life ... Praying for peace , joy & love in the home of EVERY family ♥️ #HeadScarfPJSunday LOL 😂
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