United States public debt can be defined as the money borrowed by the United States government by the issue of treasury and other securities. The public debt consists of two main components. The debt which is held by the public such as the Treasury securities held by investors. The debt which is being held by the government accounts and includes the non-marketable securities. The debt ceiling is the maximum amount of debt the United States government can have at any given time.
On 31st December 2012, the United States government reached its maximum capacity to issue debt to investors. The government must ensure that the principal amount and the interest payments are paid when due.
The federal debt ceiling has various uses in the economy of the United States. The benefits include.
- The debt ceiling helps to ensure United States government implements the fiscal policies. Fiscal policies are measures which the government has put in place to control the annual budget. Fiscal policy involves reducing government expenditure in order to ensure funds the available funds are used to meet other needs such as settlement loans, which the government, may have borrowed.
- Federal debt ceiling helps to ensure that the United States government does not borrow money in excess of the allowed set limit. From the dominion of the federal debt ceiling, the government has a maximum amount beyond which it cannot borrow. This helps to ensure the amount borrowed does not affect negatively economy of the United States. The country is going to borrow the amount it is going to be able to pay.
- The federal debt ceiling is favorable to firms exporting commodity out of the United States. There is going to be a high demand for goods and services from the United States. This increases the sales of the firms dealing with export of goods and services. Federal debt ceiling helps to maintain the dollar at a level in which the United States goods and services are going to be competitive in the market. This increases the sales volume and sales revenue.
- An increase in the debt ceiling increases the stock exchange transactions. Transaction of shares in the stock exchange increased by 3.2% in the year 2012 as compared to 2.2% increase in the year 2011. The increase in the stock exchange transactions increases revenue for the government. This has led to the rise of the debt ceiling by the United States government. Retailers in the United States also performed well as a result of increases in the debt ceiling.
The graph below describes the trend of the debt limit in the United States. The debt limit has been increasing over the years.
The diagram below shows the amount of the Federal Reserve demanded by the state and the amount that is available for lending.
Amount demanded Amount available for lending
P2
E
Q0 Q2
Taking Po and P1 as the amount the federal states require and Q0 and Q1 as the value of the debt available for lending, the debt ceiling can be clearly demonstrated by the P2, Q2 lines. if debt ceiling is set at point P2, the maximum amount of debt will be Q2. It represents the maximum funds available to federal authority that can be used to cover its expenditure level. This is the condition when the debt ceiling is set above the equilibrium market position. This leads to a positive impact on the overall economy as balance deficits can be reduced by the amount borrowed.
Works Cited
Dept., I. M. (2012). World Economic Outlook, October 2012: Coping with High Debt and Sluggish Growth (EPub). United States: International Monetary Fund,.
Masters, J. (2013). U.S. Debt Ceiling: Costs and Consequences. Renewing America , 2-4.
