What is a debt ceiling?

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A debt ceiling is a set limit to the amount of money that can be borrowed by a person or organization.  Debt ceilings are typically given specific amounts or values in order to put clarity in terms of exactly how much can be borrowed.  When this particular limit has been reached, borrowing may not be allowed anymore.  The concept of debt ceiling may be applied to people, organizations, and even governments.

When applied to people and organizations, a debt ceiling may correspond to a maximum loanable amount that any person can get.  This particular loan or debt may be part of an organization’s benefits to its employees.  With employees of different functional positions and ranks, a debt ceiling may be set in place so that everything will be clear in terms of how much each employee can borrow from the company. Those with higher positions and rank may have a higher debt ceiling when compared with employees on entry level positions and front liners.  Longer tenure may also mean higher debt ceilings for some employees.

The concept of debt ceiling may also be applied to the way the US government is handling its own finances.  Through a debt ceiling, the government is basically restricted to make any borrowings when this particular limit is reached. The basic principle for implementing the debt ceiling is to ensure that the whole US economy remains financially stable.  At any given time, the debt ceiling rule will be imposed if the government had already reached the maximum determined amount or budget.  The only way for the US Treasury to issue more bonds is through the approval of the US congress.  In this way, there will be a valid check and balance system in terms of government spending and borrowing.  Even the US President needs the approval of the US Congress in order to allow further borrowing by the national government.

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