Who really sets the debt limit?
Let’s meet Bill and Marge. Between them they bring home $6,000 a month net of taxes. The trouble is, their lifestyle costs $7,000 month. So each month, they hit the VISA card for a cash advance.
That has worked up until now but there’s trouble on the horizon. First, each month, more money is going to pay the interest on the money they’ve already borrowed, making it necessary to borrow even more. Bill and Marge are starting to understand that they have created a vicious circle.
The second problem is that they will, with the next round of bills, max out the VISA card. They will have hit their debt ceiling. Bill and Marge met over the breakfast table and reached a bipartisan agreement to raise their debt ceiling. But they’re having trouble getting VISA to put as much store in that bipartisan agreement as Bill and Marge do. Bill and Marge will soon have to drastically reduce their lifestyle and they may go bankrupt.
If you can easily understand Bill and Marge, you can just as easily understand the federal government. Because what’s true for Bill and Marge is true for the government. Expenses cannot exceed income indefinitely. And ultimately, it’s your creditors that set your debt ceiling.