Has the US always had a debt ceiling? A look at the limit’s history

Hi there, I’m Neil Patel, and today I’m going to tell you everything you need to know about the US debt ceiling. If you’re interested in finance, politics, or economics, you’ve probably heard about the debt ceiling before. But do you know what it is, why it exists, and how it affects you?

The debt ceiling is a legal limit on how much money the US government can borrow to pay its bills. It was created in 1917 to give the Treasury more flexibility to finance World War I. Since then, Congress has raised or suspended the debt ceiling 78 times, under both Democratic and Republican presidents.

But why does the US need to borrow money in the first place? Well, the government spends more than it collects in taxes and other revenues every year. This gap is called the budget deficit. To cover the deficit, the government issues Treasury securities, which are basically IOUs that promise to pay back investors with interest.

The national debt is the total amount of these securities that the government owes to its creditors. As of May 2023, the national debt is about $31.4 trillion, which is more than the size of the US economy.

What happens if the debt ceiling is not raised?

The US hit its current debt limit of $28.4 trillion on August 1st, 2021. Since then, the Treasury has been using some accounting tricks called “extraordinary measures” to keep paying its bills without issuing new debt. But these measures will run out soon, and Treasury Secretary Janet Yellen has warned that the US could default on its obligations as early as June 1st if Congress does not act.

A default would mean that the US would not be able to pay some or all of its bills, such as interest on its debt, Social Security benefits, military salaries, Medicare reimbursements, and tax refunds. This would have devastating consequences for millions of Americans and businesses that rely on these payments.

A default would also damage the US’s reputation as a safe and reliable borrower, which could cause interest rates to spike and financial markets to crash. The US dollar could lose its status as the world’s reserve currency, making it harder and more expensive for the US to borrow money in the future.

In short, a default would be a self-inflicted economic disaster that could trigger a global financial crisis.

Why is there a political deadlock over the debt ceiling?

You might wonder why Congress does not just raise or suspend the debt ceiling and avoid this mess. After all, raising the debt ceiling does not authorize new spending; it only allows the government to pay for what it has already agreed to spend.

The problem is that some lawmakers use the debt ceiling as a political weapon to pressure their opponents into accepting their policy demands. For example, in 2011, Republicans threatened to block a debt ceiling increase unless President Obama agreed to cut spending. The standoff lasted for months and resulted in the first-ever downgrade of the US credit rating by Standard & Poor’s.

This time around, Republicans are refusing to cooperate with Democrats on raising or suspending the debt ceiling unless they abandon their plans for a $3.5 trillion social spending package. Democrats argue that Republicans are being hypocritical and irresponsible, since they voted to raise or suspend the debt ceiling three times under President Trump, adding nearly $8 trillion to the national debt.

Democrats have several options to resolve this impasse, such as using a parliamentary procedure called reconciliation or invoking the 14th Amendment of the Constitution. But each option has its own challenges and risks. The clock is ticking for both parties to find a compromise before it’s too late.

What can you do about it?

As a citizen and a voter, you have a voice in this debate. You can contact your representatives in Congress and urge them to act responsibly and raise or suspend the debt ceiling before the deadline. You can also educate yourself and others about this issue and why it matters for your financial well-being and security.

If you want to learn more about the debt ceiling and how it affects you, check out these resources:

• The Debt Ceiling: An Explainer | CEA | The White House
• History of the Debt Ceiling: What to Know | Time
• The Game Theory of the Debt Limit Points Toward Settlement | Barron’s

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Thank you for reading and stay tuned for more!