The US Debt Limit and the Bond Market - Essay Example

Debt limit

Debt limit means the worth of money that the United States borrows to meet the stated legal activities such as maintaining of security, military salaries and other payments that may need a response. The systems that are given to the debt limit do not permit new expenditure commitments. It gives the government an opportunity to finance the current legal obligations, which the president and the congresses parties have approved.

The debt limit was introduced in the country in the 1960s. Since that time, the Congress has been able to act when they are needed to extend temporarily or permanently raise, or revise the definitions that they give to limits (Winters, 67). The definition has been done forty-nine times by the Democrats and forty-nine times by the Republicans. When the debt limits are not increased, there would be a catastrophic influence on the economic status of the country. When the debt is not increasing, it will make the government default all the legal obligations. This has been an unprecedented activity in the history of America. It would cause another financial crisis that would also threaten the savings and the jobs that the Americans have. The financial crisis also would return the Americans in the same economic hole that it has recovered from in the recent recession.

The debt limit has been used in the United States a political weapon. The explanation that was given by Buffet on the use of debt limit was that debt limit is the political weapon of mass destruction. The spending rate used in the country is the goal that is having of acquiring as high as ever. The explanation given to debt limit is that it is a kind of weapon that can be used for mass destruction chained to the government of United States. The jobs that the president has in the government; collecting money from the country and using the taxes collected to run the government. The debt limit is a political weapon that can be used to protect all the other factors (Winters, 107). In regards to the control of the money, it is common to hear that the government has a new budget that is set by the president.

The debt limit is used as a political weapon since it is not the government that sets the taxes but he is in control of the Congress that have the role of setting the levels and determining the amount that the government will spend in the budget that they formulate. This implies that despite the fact that the budget is submitted to the Congress by the government and request on changes to be made on the tax level, these are just considered the request that the Congress sometimes does not pay attention to as they are in charge of formulating the taxes.

The debt limit is hence used as a political weapon since the Congress can add or subtract anything that they want from the budget that is made by the president or throws away the entire budget and writes new ones. The same is in the situation of the level. The Congress can control the tax level.

Forms of United States debts

The deficit that the Unites States have in its operation is the difference between what the governments receives from the taxes it collects from the public, the other revenues it receives referred to as the receipts, and the amount of money that the government spends referred to as the outlays. The Treasury borrows money to aid the operations of the government. The money that is borrowed is through selling the securities that the government has such as the bonds, notes, and bills. The borrowing is also through saving bonds that the government has to the public.

The Treasury of the United States has the responsibility of making decisions concerning the debts that the government has and the amount that the government needs for given operations. The debt that the government owns is sold in the form of securities to the foreign and the domestic investors. The bends are sold to the other governments and the cooperation. As mentioned above, the securities that are sold by the government include notes, treasury bills, and bonds (Winters, 178). There is also selling of U.S saving bonds. The sales that are made are considered long and short-term investment options for the government.

When the debt instruments that are used by the Treasury have matured, the Treasury is then able to pay the cash that either is owed or give new securities. The debt instruments that are used by the United States government are considered the safest investment since the interest that are obtained from the investments do not have to be obtained on a yearly basis, and the authorization does not have to be given yearly be the Congress.

The public debts that a country has are a liability that the government has, and the public debt department of the government is responsible for the technical aspects of its financing. The budget policy is an instrument used by the government to exceed the revenues that it has. The policies made on the budget lies with the legislation of the government. Depending on the situation that the country is at the time the budget is formulated, running a deficit may be the only option that the country has.

The current fight over the current fight over the debt limit in Washington DC

The fight that is currently in Washington Dc is not over the amount of debt that the government should have. The media and the reporters have made be as if the long-run issue is what the fight has been over. The fight has been the increase in taxes in the country to close the gap that the budget leaves. There are those that have argued that the tax burden that the United States have is not high about the other countries and that the country still has ways through which the taxes can be raised with no harm caused to the economic growth of the country.

There are those that have argued that the debt that the country have is not an immediate problem. The estimation that has been given from the congressional budget office has stated that there is no debt problem in the country until a decade from the current situation. Some of the factors that are thought to lead to increasing the debt of the country are the increasing cost of health services. The concern has led to implementation to solve the future debt problem that the country may have. The political dispute that is in the country over the debt limit is mainly on the size and the role that the government should play in the debt issues. The conflict has been in an attempt by the Republicans to use the under fear method to illuminate the spending that is made by the government on insurance programs such as Obamacare social securities and Medicare (Winters, 223). There is also conflict to eliminate unemployment compensation. The idea is clear that the fight to illuminate the social insurances links with the increasing inequality of income in people in the United States.

The United States have lost something important as presented by the conflicts and the arguments. The country has lost the factor that it is together. Social insurance that the Republicans want to be eliminated is a way through which risks in the country can be shared as imposed by the economic status. The conflict has been in the best ways that can be used in the management of debts in the country without increasing inequality among the people of United States.

Implications of not increasing the debt limits

When the debt limit is not raised, there are different consequences that the government will have and on the United States citizens. One effect will be slashed government services. When the government goes into defaults or it goes against the deadlines that are formed, it will run in difficult decisions to make. The law will need the country to continue with the payment of the social security and at the same time denying the government the ability to borrow to pay for the services.

The other consequence of not raising the debt limit is an increase in the interest rates. In the situations that the market starts to get worried about the possibility of a government default, there will be an increase in the interest rates across all economic sectors. This is according to the economists. The situation implies that there will be increased mortgage rates and the borrowing for the citizen. The increased costs would cause inflation and a drag on the economy. It would also imply there is an increased borrowing cost for the government that leads to worsening the fiscal situation of the nation.

A run on the money markets is another fear that will be experienced when there is the default of increasing the debts. The factor played a major role in the economic crisis that was experienced in 2008. When a large fund has to be used to increase the redemption, it will increase the panic and the will need the government to come in to stabilize the market.

In situations that the government is not able to raise the debts or take measures to bridge the deficit, the United States to default some of the financial compliments that it had made limiting or resulting in delaying in the pay that vendor, creditors, and the beneficiaries are expected to receive. The payments that may be affected in the situations include military salaries and the unemployment benefits. The economy would be severely affected. They predict that failure to increase the debt limits will affect the bond market, as it will increase uncertainty in the bond market. The bond market will increase costs for the struggling United States citizens. From the consequences, the country is expected to undergo due to defaulting in increasing the debt limit is the reason why there have been conflicts in the country over debts as there is difference in understanding the facts.

Work cited

Winters, Philip D. The Debt Limit. [Washington, D.C.]: Congressional Research Service, Library of Congress, 2013. Print.