Ask Stacy: What Does the Debt Ceiling Deal Do to My Money?

Now that the White House and Congress have struck a tentative deal on raising the debt ceiling, what will it mean to you?

The deal isn’t set in stone yet, but let’s take a look at the broad strokes from Whitehouse.gov’s fact sheet

Mechanics of the debt deal
  • The president gets permission to increase the debt limit by $900 billion immediately.
  • Government agency budgets – both defense and non-defense – will also immediately be capped, theoretically resulting in $1 trillion in deficit reduction over the next 10 years and offsetting the immediate $900 billion raise in the debt ceiling.
  • A bipartisan committee will be formed to find an additional $1.2 to $1.5 trillion in spending cuts, which would automatically raise the debt ceiling by an identical amount, unless two-thirds of either the House or Senate disapproves. According the White House, the committee will consider any way possible to reduce the deficit, from closing tax loopholes to Medicare adjustments. The committee is required to make recommendations to Congress before Thanksgiving, and Congress will be required to vote on them before Christmas.
  • Should the committee fail to come up with at least $1.2 trillion in deficit reductions for the 10 years beginning in 2013, automatic spending cuts will be triggered to make up the shortfall. Cuts will be half defense, half non-defense, and could affect Medicare but won’t affect Social Security, Medicaid, and other low-income programs like food stamps.

Both sides are unhappy with the deal: Conservatives wanted more cuts and a balanced-budget amendment. Liberals wanted to close tax loopholes and raise taxes for the wealthiest Americans.

What does it mean?

The bottom line is simple: Uncle Sam is about to spend less money. Since our national debt is taking an ever-increasing share of our economy – the government is borrowing 40 cents of every dollar it spends – this may seem like a good thing. The problem? Jobs.

Before the debt ceiling debate began crowding out everything else, the focus in Washington was on the nation’s anemic economic recovery and 9.2 percent unemployment rate.

Cutting government spending will help reduce our nation’s deficit, but it certainly won’t help the economy. Just last Friday, the government announced that our national economy only grew by an expected 1.3 percent – not enough to create many jobs. More alarming, they also revised first-quarter growth downward from 1.9 percent to only 0.4 percent.

While it’s tempting to compare government spending and debt with that of a business or a family – something TV pundits have been doing nonstop since the debt ceiling debate began – it’s important to realize how the government is different. Unlike a business, our government’s mandate isn’t to create a profit. Government’s function is to serve its citizens. Sometimes that means using borrowed money to stimulate the economy and create jobs or fight wars that weren’t budgeted for.

So it boils down to this: Reducing debt is good. Stimulating a weak economy and helping people who need it is also good. If cuts in government spending reduce our ballooning debt without further damaging our weak economy, we win. If not, we lose.

For the millions of Americans looking for work, trying to recoup a scrambled retirement nest egg, or praying that their home will one day be worth what they paid for it, the stakes couldn’t be higher.

Sign up for our free newsletter

Like this article? Sign up for our newsletter and we'll send you a regular digest of our newest stories, full of money saving tips and advice, free! We'll also email you a PDF of Stacy Johnson's "205 Ways to Save Money" as soon as you've subscribed. It's full of great tips that'll help you save a ton of extra cash. It doesn't cost a dime, so why wait? Click here to sign up now.

Check out our hottest deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 1,246 more deals!

Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.

  • Marie Hyde

    I don’t understand and for many if you don’t know….food stamp receipients were suddenly given more money. Now don’t get me wrong, I know some(alot) in this economy need them. However, when the gov’t was threatening no SSI checks…..a family with 3 children(2parents and 3 and 4 kids) were given an additional 389.00 for no apparent reason…..this was overall so no telling how much was given out(this is 2 examples I personally know of). Now, granted,school is about to begin and there are expenses but.food stamps can’t be used for that case no matter what. For most, if they are on food stamps, they also receive FREE lunch programs…….How and Why do they justify this? I have never been a recepient.however,we lost our business to fire and had absolutely no income for over 6mths……….we didn’t qualify because we “OWNED” property……….even when the tornadoes ravaged our area……we still qualified for NOTHING. We had just purchased a new business and lost over 20,0000 in food.yet…we could only get a small business loan(kinda need income to be able to pay one). Our need was or should have only been temporary.but we were denied. However, I EMPLOY both of these cases in point and they do. Just last week bought a “new” used van and own “paying for” a fairly new truck. This weekend, they are going to Gulf Shores for vacation in a condo I don’t feel I can afford……it’s just not right. I’ve worked all my life(2 jobs at a time), had a stroke, had to fight to get my life back.was still denied disability or ANY assistance because(even temporarily) we OWNED property that could be sold. I’ve even had to drop my famalies insurance(I can’t mine due to the stroke no-one will risk taking me on). It’s just not right you work your butt off, pay your bills,have your pride. My mom after working all her life(75) now.only draws less than 600.00 a month(She gets 23.00 a month in food stamps starting last month). Something needs to be done about the abuse!!!!!! I will make it!!!!!!! I’ll do it on my own(with my husband) but.stop giving away our future to those undeserving…….They are perfectly capable of working too. They just don’t want to because they will lose all those benefits YOU and I pay for, and can’t have ourselves………..RANT OVER!

    • http://pulse.yahoo.com/_FVIKWKXA2XO6YECZKBMZLURLXY Martin

      Life is not fair a lot of times and your story proves that. Personally, I hate any debt at all. For property we own, I make sure we have more than enough insurance to make us whole again if anything is destroyed.  I really feel for you if you cannot afford insurance. That is the only thing that can help in times of a disaster.  Good luck in the future and I hope things work out for you and others in a similar situation.