What Is the Debt Ceiling?

The debt ceiling, also known as the debt limit, dictates the maximum amount the United States can borrow. It was instituted in 1917 to provide the U.S. Treasury Department with more borrowing flexibility. The debt ceiling does not authorize new spending but covers budget obligations that have already been authorized.

How High Is the U.S. Debt Ceiling Right Now?

In 2021, Congress raised the debt ceiling to $31.4 trillion. However, the government hit that limit in early 2023, leading to a temporary suspension of the ceiling through January 1, 2025. As of December 2023, the nation’s debt stood at $33.89 trillion, surpassing the previously set limit.

What Happens if the Debt Ceiling Is Reached?

Once the federal government reaches the debt ceiling, the Treasury Department cannot issue new debt to cover its obligations. Congress can then choose to increase the debt limit, temporarily suspend it, or do nothing. If no action is taken, the Treasury Department has two temporary measures to avoid default:

• Using incoming revenue and cash on hand
• Utilizing accounting techniques to temporarily reduce the amount of outstanding Treasury securities

If these measures are exhausted, the government can no longer fund its operations, leading to a potential default.

What Happens if the Government Defaults?

While the U.S. government has never defaulted, the consequences would be catastrophic. Potential impacts include:

• Delayed or stopped payments for social programs
• Decreased GDP
• Increased unemployment
• Rising interest rates on mortgage loans, credit cards, and other credit products
• Threats to national defense funding
• Disruption of public health systems
• Devaluation of the U.S. dollar
• Stock market crisis

A default would also send shockwaves throughout the global economy, given that U.S. Treasury debt securities are used globally as a benchmark “risk-free” asset.

How Many Times Has the Debt Ceiling Been Raised?

Since the modern debt ceiling was established in 1941, Congress has modified it 103 times, including permanent raises, temporary suspensions, and revised definitions of the ceiling.

Is the Debt Ceiling Effective?

Critics argue that the debt ceiling is akin to a credit card’s credit limit, but unlike consumers, the federal government can raise its own limit. Policymakers often pass spending initiatives without considering the limit, resulting in budget deficits. While there’s no serious discussion about abolishing the debt ceiling, the U.S. Government Accountability Office has called for reforms to minimize political drama and economic threats.

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