The looming deficit crisis and the fear of a government shutdown, forced our family to implement our own austerity program: We parked the SUV with the gnomes (that did not make the small creatures happy, they had to raise their height limit in our garden); my beloved Chihuahua, Diego, is eating off- brand dog food (he barks at it, pleading for it to taste better); and my boxed wine is now bought at the dollar store. (My husband did suggest once that I give up wine but after a long discussion he decided it is better not to bring up it up ever again.)
Our government is hitting the mandated debt ceiling or the allowable spending amount of $14.22 trillion. The debt ceiling was implemented in 1917 and Congress has enacted 74 separate measures since 1962 increasing the federal debt limit.
Our deficit is the difference between the money the government brought in, from taxes (60%) and the sale of bonds; versus the amount spent, to the tune of $1.5 trillion dollars doled out year to date. We will hit the debt ceiling sometime in the next few days. Unless Congress raises the debt ceiling, the markets around the world will, to use a technical term, freak-out.
The ramifications of not raising the debt would be a global financial mess. Our government would default on existing responsibilities. And we are not talking about a car payment or missing a credit card bill, but payments on a broad range of legal obligations, including Social Security, Medicare benefits, military salaries, interest on the national debt, the list goes on and on. After-effects could include higher interest rates, increased unemployment and lower home values. (Soon the sellers will be paying the buyers to purchase homes.)
The Republicans and Democrats are arguing over what would best serve the American People to cut our annual spending. Neither party can come to an agreement, which is why there is so much chatter regarding the debt ceiling ($14.22 trillion) and the deficit ($14.21 trillion)
How did this happen? Did the government spend more than it makes? Yes and No. Over two thirds of the deficit was caused by the financial collapse as reported by Phil Angelides, chair of Financial Crisis Inquiry Commission (FCIC). The engorged deficit is a result of bail out money to our friendly neighborhood banks.
There is no choice but to raise the debt ceiling. And things will go back to the new normal once the government implements a new austerity program. But it will be us folks living in the real world with boxed wine and cheap dog food that will continue to pay for past Wall Street sins.