Thursday, July 28, 2011

What is the U.S. debt ceiling and why does it matter?


On May 16, the federal government announced the United States had hit its legal debt limit, launching a battle of wills and words between President Obama and Congress about how to proceed. John Longo, a clinical associate professor of finance and economics at Rutgers Business School–Newark and New Brunswick and chief investment officer with the MDE Group of Morristown, spoke with Rutgers Today about the looming crisis. Frequently quoted on CNBC and Bloomberg Television, Longo has taught in Rutgers’ undergraduate, MBA, Executive MBA, and International Executive MBA programs for more than a decade.
Rutgers Today: Can you explain the meaning of a “debt ceiling” to those of us for whom economics is not our native language? To whom, exactly, does the government owe this $14.2 trillion?
Longo: It actually owes it to two broad groups or parties. One is the people and entities who have bought U.S. Treasury securities, roughly half of whom are foreign investors – China and Japan are the biggest creditors of the U.S. Treasury, holding 26 percent and 20 percent, respectively, of outstanding debt obligations. The other is payment to keep the federal government running and meet its obligations: employees, members of the military, vendors – anybody on the government payroll – as well as entitlement programs such as Social Security and Medicare.
Rutgers Today: What does it mean that the United States government hit its debt ceiling on May 16? How did we get into this jam?
Longo: We got into the jam for two reasons: a weak economy and, generally, politicians like to spend. Our expenses are greater than what we are getting in taxes and fees and other revenues. We have had a deficit in excess of a trillion dollars a year over the last three years. In order to keep borrowing money, it has to be authorized by Congress, and they’re holding it up because the members – at least on the Republican side – want to see a . . . . . . . . . .


  1. Our earstwhile Prez says it's time to tax the living hell out of the wealthiest Americans and
    also large American corporations - I heard with my very own ears him make that very comment

    Fully 50% of the ENTIRE American population pays
    NO TAX - ZERO NADA NONE and he thinks taxing the living shit out of 1% of the wealthiest is
    somehow; going to offset 150 MILLION on his
    gov't handout program ? A 1st grader can do that math

    Sitting on his very own business czar board is none other than Jeffrey Immelt of GE which posted 14.2 BILLION dollars in profit 2010. That's what they posted folks - what did they pay in taxes ?


    Guess what they'll pay in '11 ??
    '12 ??

    I'm really tired of this these lying, cheating,
    manipulating sonsabitches and this one really takes the cake.

    This prick needs hung

  2. how do bankrupt nations and unpayable national debts play into global integration of economic policy and currency, has sovereignty there and here been given up and will it bit by bit due to any of this, has this all been foretold.
    worlds on the highway to hell, why go with it. maybe put hope in something eternal and not man made and live life. no stress or anger but very interesting things happening, historic times and yet nothing new under the sun...the UN lately and caesar long ago also made call's that all men everywhere should pay a tax..easier today with all peoples tracked and will get easier still as new systems come online.
    none of this will matter in eternity


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