The debt limit is kind of a financial weapon
of mass destruction chained to the United States government by the United States government. Confused? Then it's time for The United States debt
limit Explained. To understand the debt limit you need to know
the US splits financial responsibility between the president and congress. The president has two jobs when it comes to
money: 1. Collect taxes and... 2. Spend those taxes to run the government. This might give you the impression that the
president, with regards to money, is all-powerful. Especially when you hear news reports on 'the
president's new budget' or his plan to 'raise taxes on haberdashers' or 'lower taxes on
apiarists'. But reality is just the opposite and the president
is the one who takes orders. From whom? Congress. Congress has the jobs of setting the tax level
and determining how much the government will spend by writing a budget. So while the president does get to submit
budgets to congress, and asks for changes in the tax level, these are just requests
that congress doesn't have to pay attention to. Congress can add or subtract anything they
want from the president's budget or throw it out entirely and write a new one. The same goes for the level of taxes. So congress decides what it wants: bridges,
tanks, buildings, courts, robots on Mars, robots on Earth, National Parks, whatever
and approves a budget with that stuff in it. Once approved the president's is required
by law to spend the money Congress listed in the budget and pay for it using the taxes
that congress set. As long as more taxes come in than spending
goes out everything is fine. But, almost always, Congress puts more stuff
in the budget than they cover with taxes which means the president must borrow money to cover
the difference. In most countries the story ends here because
if their legislatures approved more spending than they have income, they've also implicitly
approved the necessary borrowing -- but not in America. Here Congress *also* limits the total amount
of debt the United States can have. A debt limit sounds like a good idea until
you see the real-world consequences of these two branches of government interacting. As the total amount borrowed gets closer to
the limit, Congress usually points to the president and acts shocked, *shocked* that
his reckless spending has brought us so close to the debt limit that they, reasonable, prudent
Congress have set. And while it's technically correct that the
president has borrowed this money, congress has forced him to do it, by approving a budget
that the president is legally obligated to spend without also approving the necessary
taxes to cover that spending. So the debt limit fight is essentially the
government version of the playground favorite: 'stop hitting yourself' except with added
terror for everyone watching. For, it's important to note, the debt limit
is not about future spending -- it's not a credit card on which the limit will be raised
so a crazy government party can be thrown -- the debt limit is about paying bills already
incurred. For example, the government hires a company
to repave a federal highway. But if the US is at the debt limit, when the
company asks to be paid after the work has been done, the government can't. This shakes trust in the US and since large
parts of the global economy depend on the dollar being trust worthy, messing with that
trust is a big deal. But there is a way out: Congress can raise
the debt limit and, because of the aforementioned terror, they always have. So… if not raising the debt ceiling is potentially
disastrous and the solution is simple and always taken in the end: *why does this debate
last months‽* Because: politics. The debt limit isn't in the constitution,
congress created it themselves and from their point of view, the debt limit is awesome because: 1. It creates a problem that
2. Congress can (technically) blame on the president
who 3. Needs the solution that only they can provide Congress gets to use the threat of mutual
financial self destruction as leverage in negations that they benefit from extending
until the last… possible… second.
I'm a Canadian, and we're far from perfect, but your videos make me terrified of the United States.
So where does the trillion dollar coin come in to this?
I found the Minecraft reference. Good one. Going to check the Holland video and see if I remember it.
This was (another) great video, CGP! I learned a lot of new things about the issue, and it left me wanting to know more. John Green has his video about the National Debt and Budget Deficit ( http://www.youtube.com/watch?v=3ugDU2qNcyg&feature=share&list=UUGaVdbSav8xWuFWTadK6loA ) so combined with yours, I wonder more about the whole picture between the two, and more importantly, what are possible solutions to this? It cannot really go on like this forever, can it? It's so dysfunctional!
The Govt not paying its bills is obviously bad and the highway contractor would be most displeased, etc.
I can see why that makes people think the US Govt is a bad organisation to do jobs for, but is there a nice CGPGrey style sentence that tells me why that undermines the $ as a whole and affects the rest of the world?
You should do a video on the health care bill that has passed. I could send you some of the ridiculous chain letters that have been floating around by republicans.
If you take a labour theory of value and apply it to this, this looks an awful lot like enslavement of the people through taxes. With the Congress viewed as a sort of gangster, manipulating the views of the people in order to be seen as needed by the people, and keeping a leash on the president.
But I doubt real life is anywhere like that. ;3
Whoa. What's with the monochrome for this one?
Anybody care to give us some sources so I can prove this to my ignorant friends - who just believes CPCGrey is lying through his mouth.