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April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review

8 questions you might have about the debt ceiling

By Morgan Housel






JewishWorldReview.com | October 17.

Mark that day on your calendar. According to Treasury Secretary Jack Lew, that's when -- give or take a few days -- the U.S. government could effectively run out of cash and be unable to pay the nation's bills, potentially defaulting on our debt for the first time in history.

Why?

In May, the government hit the debt ceiling, which prevents it from borrowing more money. We've been able to keep the lights on until now because Fannie Mae and Freddie Mac repaid a huge portion of their 2008 bailout funds, and the Treasury juggled around money in intra-government pension funds to stretch out our cash. But after Oct. 17, the game is up.

The odds are still overwhelming that Congress will raise the debt ceiling to avoid default. This is the third time we've done this political dance in as many years. But this showdown looks especially precarious -- neither party shows any sign of giving in. "Make no mistake," Potomac Research Group wrote this week, "this will become a genuine crisis, far more ominous than the threat of a government shut-down."

Questions? Let me see if I can help.

What is the debt ceiling?
It's a self-imposed limit on how much the nation can borrow.

Here's how it came about.

Before 1917, Congress had to approve each new debt issuance. If it needed to borrow money for a specific project, it had to pass new legislation deciding on the bond's maturity date and interest rate.

This became too burdensome once World War I hit. Congress slowly loosened the rules on individual debt issuances before removing them entirely in 1939. Still, it didn't want to make borrowing open-ended. So Congress basically told the Treasury, "You can borrow this much money. Go figure out the best way to do it." This "gave the Treasury freer rein to manage the federal debt as it saw fit ... with maturities that would reduce interest costs and minimize financial risks stemming from future interest rate changes," according to the Congressional Research Service.

Once we hit the debt ceiling, Congress goes back and raises it again. Rinse, repeat.

What's the purpose of a debt ceiling if we raise it every time we hit it?
Many political scientists, economists, and budget analysts have asked that question. Most seem to come to the same conclusion: It's pointless. There's a theory that the debt ceiling can be used as a "precommitment device," or a tool that prevents us from doing something bad in the future. But since it can be lifted at any time, it doesn't do much besides boosting C-SPAN's ratings a few times per year.

Doesn't it control spending?
Not really.

It can be used as a bargaining chip, but the debt ceiling has no direct link to the normal annual budgeting process. Budgets are passed nearly every year that will require borrowing in excess of the debt ceiling limit. When Congress authorizes these budgets, there's an implicit assumption that they'll also raise the debt ceiling.



The need to raise the debt ceiling isn't so much about controlling future spending as it is paying for spending Congress has already agreed to. Two budget votes take place in Washington: one to decide how much to spend (the budget) and another down the road to decide whether we want to pay for that committed spending (the debt ceiling).

What other countries use a debt ceiling?
Denmark. No one else. And Danes are practical about it. They've only had to raise their debt ceiling once since the early 1990s, and politicians nearly doubled it so the issue won't pop up again soon.

How often has America's debt ceiling been raised?
Since 1940, 99 times -- or an average of every nine months. Here's how many times the debt ceiling has been raised under each president since 1940:

President

Number of Times
Debt Ceiling Was Raised

Roosevelt (1933 -1945)

6

Truman (1945 -1953)

2

Eisenhower (1953-1961)

8

Kennedy (1961-1963)

5

Johnson (1963-1969)

8

Nixon (1969-1974)

9

Ford (1974-1977)

6

Carter (1977-1981)

9

Reagan (1981-1989)

18

GHW Bush (1989-1993)

9

Clinton (1993-2000)

6

GW Bush (2000-2009)

7

Obama (2009-present)

6

Source: Office of Budget and Management.

What happens if we don't raise the debt ceiling by Oct. 17?
The government won't be able to pay all its bills. Everything from Social Security payments to soldiers to park rangers to interest on the national debt.


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The government still takes in a lot of tax revenue -- about $2.7 trillion this year. That could pay some (even most) bills. But deciding who gets paid and who gets stiffed is tricky, both legally and logistically.

One idea is that the Treasury can prioritize payments on things like soldier pay and interest on the debt. But the Treasury says it's not equipped to do that. It processes several hundred million checks each year, and its computer system isn't set up to pay in any other order than first come, first served. The Inspector General said as much last month:

While Congress enacted these expenditures, it did not prioritize them, nor did it direct the President or the Treasury to pay some expenses and not pay others. As a result, Treasury officials determined that there is no fair or sensible way to pick and choose among the many bills that come due every day. Furthermore, because Congress has never provided guidance to the contrary, Treasury's systems are designed to make each payment in the order it comes due.

Some legal scholars also say that if one person (say, a government vendor) isn't paid so that someone else (say, a Medicare recipient) can be made whole, the vendor could sue the government for unlawfully prioritizing. That brings up a whole new set of problems.

And while the Treasury takes in a lot of tax revenue during the year, it's not like a worker's stable paycheck that arrives in equal amounts every other Friday. It's lumpy. Check out the Treasury's daily cash-flow statements. On Tuesday of this week, it took in $11.6 billion of tax revenue. On Sept. 3, it took in $127 billion. On Aug. 19, it brought in $4.1 billion. In February, it took in $122 billion. In April, $406 billion.

When payments are lumpy and the Treasury is unable to borrow, a point will eventually be reached where we'll have, say, a $50 billion interest payment due but only $10 billion of tax revenue coming in the door that day. Short-term cash-flow problems, not total annual revenue, are what make a debt default unavoidable without raising the debt ceiling. (It's also why the government still borrows from time to time when it's running a surplus.) This is exactly the situation we faced during the debt-ceiling showdown earlier this year.

Does not raising the debt ceiling make us bankrupt?
Bankrupt, no. Deadbeat, yes. America can pay its bills. Whether it has the will to do so is another story.

What should I do with my investments?
Probably nothing. There is never a good time to panic. If you were comfortable with your investments last month, you should be comfortable with them next month. However hairy this gets, we'll get through it. Turn off the TV, and take the long view.

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Comment by clicking here.

Morgan Housel, a columnist at The Motley Fool, is a two-time winner, Best in Business award, Society of American Business Editors and Writers and Best in Business 2012, Columbia Journalism Review.


Previously:


An open letter to everyone under age 30

15 biases that make you do dumb things with your money

If this scares you, you shouldn't be investing

What I plan to do when the market crashes

The three most important words in investing

Monkeys and investing

Two types of risk, two types of bubbles

The secret to financial success: Use ignorance to your advantage

How to effectively fight investors' greatest enemy

Four mistakes that make everyone a bad investor

Learning from the past, and the Next Big Tren

What newspapers were saying when you should have been buying

Why you never learn from your investment mistakes

The curse of success, and why most mutual funds fail miserably

If you know only five things about investing, make it these

Why spotting bubbles is so much harder than you think

When smart investors do stupid things

The deep downside of home ownership

The biggest retirement myth ever told

He's rich, smart and old: Listen to him

Admit it: No one has any idea what's going on

Gold collapse: The start of something big?

BAD NEWS: EVERYONE IS RIGHT!

Twitter: The carnival barker of investing

Warning: Don't waste your capital being fooled by profit prophets

25 important things to remember as an investor

New paradigm for both drivers and car companies

Biases that make you a bad investor

Nine financial rules you should never forget

Gaining from financial destruction

How to read financial news

Housing: Partying like it's 1925

A rebuttal to student loan horror stories

CONGRATULATIONS: We just saved half a trillion dollars

End this crazy tax: It will boost the economy

Medicare: A dangerously good deal

Economic future looks bright

The Biggest Threat to Your Portfolio (It's Not What You Think)

Bond Market Bull Run dead at 30



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