I did not follow closely the conversation and debate between the democrats and the republicans over the issue of raising the debt limit in the United States. There were fears of a default and economic Armageddon if the debt limit was not raised by August 2rd, 2011.
Looking at how the market “wall street” has performed since the passage of the debt limit bill, one could easily conclude that the America economy is slowly walking to a train wreck. It was running towards it before the bill passage as some have suggested. The bill has just put some temporary brakes on the inevitability.
The American deficit or the difference between what the U.S government collects and what it actually spends is approximately 1 trillion dollars. That is, the U.S government is spending approximately 15 trillion dollars a year and collecting only 14 trillion dollars in the same time span.
In my little understanding about economics, what the raising of the debt limit is doing is analogous to raising the blood alcohol limit when you’re trying to curb a drunken driving epidemic. That is to say, you can still drink and be drunk before you breach the legal limit and/or before the cops can legally stop you. In the same token, the government now can continue to over spend without taking serious measures on the actual debt that the U.S government is currently carrying.