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What is a debt default? And the debt ceiling?


To default on a debt is to fail to make a scheduled payment on a loan. A sovereign debt default is when a country defaults on money it owes - as happened to Argentina in the early 1990s, for example.

What is the 'debt ceiling'?


The above video gives a very good description of the debt ceiling. But some might put more emphasis on the current scale of US debt - which has edged up towards $17 trillion at an alarming rate - see debt clock here

What brought the debt ceiling back into political play has been growing consensus that the debt is now unsustainable in the long term. The key question Democrats and Republicans battle over is what to do about this.


It is universally agreed debt default (see below) could have a potentially catastrophic impact on the world economy. This prospect  eventually lead to a temporary deal between the warring parties.



Why would a US debt default be a disaster?
Usually the national currency falls in value and this helps to make the goods of country concerned more affordable. International institutions like the IMF also arrange repayment plans or write offs/markdowns of debt.

For the US, however, none of the above options are feasible. It is literally too big to fail.

More Fun Facts (ESOL)

The English Language:100 FAQ


Comments

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    Replies
    1. Becoming more financially aware is the solution to most financial problems.

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