What is the Debt Ceiling?

If you’ve been reading the news lately, you’ve probably noticed a headline or two that you swear you’ve seen before: the US government is discussing raising the debt ceiling. News like this is so routine at this point that it’s easy to gloss over it, but today we’re going to breakdown exactly what the debt ceiling is, why it’s been raised so many times, and why you should care!

What is the debt ceiling?

According to the US Department of the Treasury, the debt ceiling is “the total amount of money the United States government is allowed to borrow to meet its existing legal obligations.” These obligations include things like social security, medicare, and military expenses, but crucially, it also includes federal employee salaries and government bond holders.

Why does it get raised?

The debt ceiling was originally created as part of a statute that allowed the government to issue bonds during World War I to finance military spending. Since then, it has been raised 78 times. The reason it gets raised is simple: it lets the government borrow more money without having to worry about paying it back or defaulting on the debt.

Imagine if you had a credit card with an arbitrary debt limit, say $10,000. Now imagine that as you approached that limit, instead of being stuck until you paid it back, you could just call your bank and ask them to raise that amount to, say, $20,000. And when you came close to hitting that limit, you had them raise it again, and so on. You could carry around an ever growing amount of debt, paying off only a tiny bit at a time, without ever having to worry about defaulting!

What does it mean for investors?

Basically, the government is in a sticky situation: they don’t have enough money available to pay back the debt, so they have to either default on it, or raise the limit. Since the funds simply aren’t available, there is no way for them to just pay the debt off to avoid both outcomes.

What can I do about it?

Let’s be honest: the government probably WON’T default on its debt and instantly trigger the collapse of the entire American economy. However, there are ways you can make investments that are protected from even the risk associated with the debt ceiling, for example by investing internationally.

Belize is a great place to do this because the economic laws are similar to those of America while also being a separate economy. In fact, Belize is one of the fastest growing economies in the region. By investing in businesses, agriculture, and real estate in Belize, you can build a diverse portfolio that is resistant to changes and market uncertainty in the US.

To learn more about investment opportunities available in Belize, check out our latest offerings here.