Economies go in cycles. They get better and better, then worse and worse. One historic bad cycle was the Great Depression of the 1930s. Currently our economy is in a recession and it may be getting worse. Unemployment is up, people are spending less money, and banks aren’t lending as much money out. One of the results of our economy being so weak is something called the debt ceiling. When asked what they thought the debt ceiling was GFS Middle-schoolers really knew very little. The most common answers were: “A ceiling;” and “It has something to do with money.” Those who thought it had to do with money were right. Those who thought it was an actual ceiling, not so much.
Over winter break you probably heard about something else called the fiscal cliff. When George W. Bush was in office, Congress passed a law to lower taxes. That law expired on December 31st 2012. After the law expired, Congress had the opportunity to raise taxes significantly, however they opted only to raise taxes a little bit on very wealthy people. Since the U.S. is in debt, Congress had the chance to make a significant dent in the country’s debt through raising taxes. Since they didn’t, the U.S.’s debt is still rising considerably because the country spends more money than it generates.
Every year our government makes a budget. Included in that budget is the maximum amount of money the country is allowed to borrow. The debt ceiling is the maximum amount of money the government is allowed to borrow in order to pay for expenses they have already agreed on. Since the U.S. keeps getting too close to the debt ceiling, Congress has to keep raising it, and so the country’s debt grows. If the Government doesn’t raise the debt ceiling it won’t be able to pay its bills. However, if the U.S. continues to raise the debt ceiling, eventually we won’t be able to pay back the other countries that we borrowed from and that would lead to really serious financial problems for the country.
In less than a month, we will hit the debt ceiling again. There are two main points of view about how we deal with that. Most Republicans think that we should cut government spending on things like Health Care, Medicare and Social Security. This would decrease government spending significantly and potentially give us the opportunity to begin to pay off our debts. Most Democrats think that we should raise the debt ceiling again. They think that the government should spend money to offset the fact that people and businesses are not spending as much money. They also believe that people who receive Medicare and Social Security need it, especially in a bad economy. Either way, one way that the government is dealing with the debt ceiling is to print more money in the hopes that it will help offset the contracting economy.
What do you think we should do? Should we raise the debt ceiling? Cut spending? Whatever happens, Congress will soon make a decision that will change our country’s history forever.