The Debt Ceiling 101

Wednesday, January 05, 2011

Dan Gross, columnist and economics editor for Yahoo! Finance, explains the concept of debt ceilings and their political significance.


Dan Gross

Comments [8]

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Feb. 25 2013 04:44 AM
geTaylor from Bklyn., NY

Guess who's joining the Tea Party
March 20, 2006:
This was the last stand-alone debt limit vote on which then-Senator Obama voted.
He was one of 48 members to vote against the increase, which passed with 52 votes.
He said:
“The fact that we are here today to debate raising America's debt limit is a sign of leadership failure.
It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. … Increasing
America's debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

Jan. 05 2011 01:43 PM

In addition to debt, the financial return models used to check if pension plans (including social security) are solvent are wildly optimistic. They assume 7-8% returns (6% inflation adjusted) when actual returns are inline with GDP growth, or 2.5% inflation adjusted. This means we either cut benefits or increase debt dramatically.

Its a trillion dollar black hole. See

Jan. 05 2011 11:18 AM
Fred from Bloomfield, NJ

Kabuki Theater? This is a frequently used phrase that I suspect that is used by someone who has never seen Kabuki. Isn't it more like Noh Drama?

Jan. 05 2011 11:13 AM

The debt ceiling should be proportional to GDP.

Every time there's a debate over the debt ceiling, it's done for political gain and nothing significant happens. Plus, as far as I am aware, no one has ever suggested lowering the ceiling.

Why isn't the ceiling proportional to GDP? Wouldn't that nip the debt problem in the bud? Or is such an idea too good for us/US?

Jan. 05 2011 11:13 AM
tom from astoria

This question goes deeper : If the US had all those tens of millions of jobs that are fueling the Chinese economy -- would we have a debt problem at all?

Jan. 05 2011 11:12 AM
Steve from Brooklyn, NY

I understand this is an adult moment. Does that mean NY Gubernatorial Candidate and former madam, Kristin Davis, will be involved?

Jan. 05 2011 11:10 AM
BigGuy from Forest Hills

I look at doomsday scenarios from time to time. Here's what could happen, in the WORST of circumstances, if the USA was to default on its debt.

Fair Value on the Dow would be 5500; the 6000 point drop would occur in less than 5 business days.

Commercial and residential real estate values would fall about one-third and stay down for a long time; at least 20 years.

Grain and meat commodity prices would fall at least a third. Oil prices would fall by more than 50%.

The unemployment rate for white married college graduate men, under age 50, would rise to above 20% and stay there for a very long time -- at least ten years. The unemployment rate for everybody else would be substantially higher.

Real estate values would recover in about one to two generations.

Stock market values would recover in about two generations.

Gold would go up in value at least 20%, maybe 40%, and then go right back down.

Jan. 05 2011 10:58 AM

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