what is the difference between the fiscal cliff and debt ceiling?
Hi Everyone,
With so much talk as of late regarding the topics of fiscal cliff and debt ceiling, I am wondering what the difference or differences are between these two concepts being thrown around the political arena. To me, it seems like two separate words describing the same thing. For instance, I understand the government has a huge deficit. While I am not sure if this statistic is accurate or up to date, but, I have heard $1.5 trillion dollars. With $1.5 trillion dollars in debt, I believe the government has been frantically trying to resolve this situation before going into default by the end of the fiscal year. In other words, I believe the government has a "set" amount or debt ceiling which it can go up to before defaulting on its own debt. And, if it exceeds that amount by the end of the fiscal year, then, it results in what is termed a fiscal cliff. But, what about debt ceiling? Does it not describe the same scenario or are fiscal cliff and debt ceiling actually two different things operating here?
Any shared thoughts or opinions to this question will be greatly appreciated. I look forward to hearing back from everyone.
Thank you
George
With so much talk as of late regarding the topics of fiscal cliff and debt ceiling, I am wondering what the difference or differences are between these two concepts being thrown around the political arena. To me, it seems like two separate words describing the same thing. For instance, I understand the government has a huge deficit. While I am not sure if this statistic is accurate or up to date, but, I have heard $1.5 trillion dollars. With $1.5 trillion dollars in debt, I believe the government has been frantically trying to resolve this situation before going into default by the end of the fiscal year. In other words, I believe the government has a "set" amount or debt ceiling which it can go up to before defaulting on its own debt. And, if it exceeds that amount by the end of the fiscal year, then, it results in what is termed a fiscal cliff. But, what about debt ceiling? Does it not describe the same scenario or are fiscal cliff and debt ceiling actually two different things operating here?
Any shared thoughts or opinions to this question will be greatly appreciated. I look forward to hearing back from everyone.
Thank you
George
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ASKER
Hi Everyone,
I greatly appreciate the attention and detail given in the replies to this question. After reading each response, I was able to learn a great deal more about the differences between fiscal cliff and debt ceiling in additing to correcting a few of my own misconceptions as they relate to these concepts.
Great job!!!
George
I greatly appreciate the attention and detail given in the replies to this question. After reading each response, I was able to learn a great deal more about the differences between fiscal cliff and debt ceiling in additing to correcting a few of my own misconceptions as they relate to these concepts.
Great job!!!
George
ASKER
Thank you so much for your quick reply. Sticking to your explanation of the fiscal cliff, could the recent increase in Social Security taxes be considered an example of a solution used to circumvent it? Also, what was the actual percent increase of Social Security taxes? I have heard it went from being 4% to an increase of 6%.
With respect to your explanation of the debt ceiling, could it be compared to the limit a consumer might have on a Visa or MasterCard credit card? For instance, lets say a consumer is allowed a credit up to $5000 on a credit card. Since its ceiling is set at $5000, the consumer can not exceed that amount. I am speculating the federal government operates off of a similiar principle of economics.
George