Debt Crisis

What is the debt ceiling?The debt ceiling is a borrowing limit that the US government imposes on itself. At present that ceiling stands at 14.3 trillion dollars, which at 95 percent of the country's Gross Domestic Product (GDP) is the largest government debt in the world. To put it in perspective, the cash that the US government currently has is less than what Apple Inc. currently has.What is the crisis? [caption id="attachment_48099" align="alignleft" width="380" caption="Pablo Martinez/Reuters"][/caption]The US wants to borrow more money to pay off its debts, but this would involve raising the ceiling - a move that requires approval from Congress. The Republicans in Congress are demanding drastic spending cuts in return for increasing the ceiling, but President Obama and the democrats are anxious to protect healthcare funding for the poor and some of their other welfare programmes. In the meantime the largely Republican Tea Party movement which endorses reduced government spending and opposes taxation, insists that the ceiling should not be raised at all.If the ceiling is not increased by August 2, the US government will begin defaulting on its debts. Analysts have warned that if this were to happen, the impact on the US economy would be disastrous. Pundits have already begun calling August 2 'D-Day' and have termed the entire crisis 'debt-ageddon'. And as demonstrated by the Lehman brothers crash of 2008, a shock of this nature to the US economy will have a massive fallout on the global economy as well. Some economists are saying however, that a full blown crisis can be averted by stop gap measures such as a temporary rise in the ceiling until a permanent agreement is reached. But as of now, the Obama administration is working full time to try and resolve the crisis. However the impasse has spooked creditors so much that the US might well lose its AAA credit rating, making it even more expensive for the government to service its debt.