There has been much talk about the fiscal cliff. What is the fiscal cliff and how much of a danger is it? These questions and more may best be summed up in a simple question and answer format.
Question: What is the fiscal cliff? Answer: The fiscal cliff refers to a moment in time after which the Government does not have enough money to continue to meet it’s obligations, basically, to run itself.
Question: Why will the Government run out of money?
Answer: There are really two answers to this. The overall reason the Government will run out of money is because, for several decades, it has spent more, or far more than it takes in in revenues in just about every year. The specific reason it may not have enough money to continue to pay it’s bills is because in order to be able to continue spending more than it takes in in revenues, the government has to continue borrowing to make up the difference. The government has set up a borrowing limit, commonly called a debt ceiling. In order for the government to borrow above the debt ceiling, Congress must approve such an increase to the debt ceiling. The president cannot do this by himself. If the government does not approve an increase in the debt ceiling, it will suddenly, within the span of a day, not be able to pay over 40% of the bills it currently pays. Monies and accounts can be shifted around so that this day can be delayed, however there is a point in time when it will occur.
Question: When is the fiscal cliff: Answer: The fiscal cliff is sometime in the month of December 2012. There is not an exact day because the government can move money around for a short period of time, estimated at approximately a few weeks.
So the answer to the question what is the fiscal cliff is quite simple.
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