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Economics: Debt Ceiling Public Misunderstanding

Since the early 1960’s the debt ceiling has been raised more than 70 times. So why is this time such a concern?

Many Americans believe raising the limit would lead to more government spending and higher debt. According to some experts this reflects public misunderstanding.

But whether people understand the debt ceiling or not, they still have feelings about it.

“People in Washington should remember who they’re working for,” one Ellettsville resident said. “I’m very afraid of what’s going to happen, it’s frightening,” and another, “It’s amazing the people in Washington are playing around with this.”

The fact is if the debt ceiling is not raised, then the government could default on debt. Assistant Professor of Economics, Todd Walker says it’s a ripple effect to state governments.

“During times of recession, people should expect that tax revenues are going to fall because people are out of a job. Deficits in recessions should be higher than when you have sustained growth. That’s exactly what you want government spending to do,” Walker said.

States rely on the municipal bond market to fund basic needs and states credit ratings will also be affected— but there is no quick fix. “There are certain assets that the federal government issues to states that the states rely upon to finance their expenditures and if the federal government doesn’t raise the debt ceiling, then these assets of course are going to disappear,” he said.

Though the nation hit its $14.3 trillion debt limit in May, Treasury Secretary Timothy Geithner estimates the government can continue to borrow until August 2nd.

Shameka Neely

Shameka Neely, a native of Nashville, Tennessee enthusiastically joined WTIU as Senior Reporter/ InFocus Producer in the news department. She holds a Bachelor of Arts in Organizational and Corporate Communication, with a minor in Marketing and Masters of Arts Degrees' in Administrative Dynamics and Communication all from Western Kentucky University. Shameka also holds a Master of Arts degree in Journalism from Indiana University.

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