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Good Question: What Exactly Is The Debt Ceiling?

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(credit: CBS) John Lauritsen
John Lauritsen is a reporter from Montevideo, Minn. He joined WCCO-...
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MINNEAPOLIS (WCCO) – As the stare down over the government shutdown ends its eighth night in Washington, lawmakers are readying for another fight.

Next Thursday, the economy would be seriously hurt and possibly fall back into a recession.

So with so much at stake, what exactly is the debt ceiling? It’s kind of like our government’s credit card limit that just happens to be about $16.7 trillion.

“The debt ceiling is the amount that our government in Washington can borrow,” said Larry Jacobs, public affairs professor at the Humphrey School.

Jacobs said the debt ceiling is the most worrisome part of what’s happening in Washington right now. And it deals with past spending, not the future. For example, the government may run up debt to build a weapons defense system. Eventually the government has to pay that debt, and they may have to raise the debt ceiling to do it.

“The key here is as that spending comes due we have to raise the ceiling or we run the risk of going into default, which would be a disaster,” Jacobs said.

If Congress can’t agree to raise it by Oct.17, Jacobs says the American dollar will lose credibility overnight, and worldwide. We could ultimately see a drop in jobs and a rise in interest rates. Jacobs says everyone from college students to home buyers would be affected.

“You are talking about everything from mortgage rates, to student loans, to whatever it might be then. If we don’t lift the debt ceiling we will see interest rates across the board rise because America will no longer have a safe credit rating,” Jacobs said.

Since the debt ceiling was passed by Congress nearly 100 years ago, in 1917, America has never defaulted.

That’s why the American dollar, as of now, is considered the premiere currency in the world.

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