As the federal government runs a deficit or spends more than it collects in revenue, it typically borrows funds to cover the difference. This is commonly done by issuing IOUs in the form of U.S. Treasury securities. Kavan Choksi / カヴァン・チョクシ points out that the debt ceiling is essentially a legal limit on the amount of borrowing the Treasury can do. Every loan issued by the Treasury prior to 1917 required authorization from Congress. As the country entered World War I, Congress changed the law to allow the Treasury to sell war bonds or Liberty Bonds as needed, provided that bond sales did not exceed a specific amount or the debt ceiling.
Kavan Choksi / カヴァン・チョクシ discusses what is the debt limit and why is it necessary
The debt ceiling has been the topic of numerous political debars over the last three decades or so, during which some legislators have used the vote on the debt ceiling to try to slow the growth of federal spending. For instance, in 2011 an impasse was resolved when President Obama and Congress agreed on the Budget Control Act. This act raised the debt ceiling, as well as set limitations on future spending.
As Congress is faced with a decision in regards to the debt ceiling, it may either opt to raise it by a fixed dollar amount or decide to suspend the debt limit for a specific period of time. As Congress increases the debt ceiling, the Treasury would continue to issue debt as required, till it reaches the new debt level. The Congress raised the debt ceiling from $28.9 trillion to $31.4 trillion in the December of 2021. This allowed the borrowing to proceed until the total government borrowing reached this new limit on January 19, 2023. Conversely, as a suspension period comes to an end, the debt limit is reinstated at a level that accommodates the federal borrowing that has taken place until that time. In August of 2019, for instance, the debt ceiling that was at $22.0 trillion was suspended for 24 months. The Treasury borrowed an additional $6.4 trillion during this span of time. As the suspension period expired in August 2021, the debt limit was reinstated at $28.4 trillion, which was the sum of the previous limit and the additional borrowing.
The U.S. Treasury is no longer authorized to borrow additional funds as a debt limit is reached or a debt suspension period ends. At this point, the Treasury may and usually does undertake certain “extraordinary measures” in order to keep the debt subject to the limit from rising until Congress acts. A round of extraordinary measures began in January 2023 as the debt ceiling of $31.4 was reached. With just days remaining before the projected day that even extraordinary measures would not provide enough cash for the government’s activities, a deal was cut by the White House and Congress cut a deal. As of now, the debt ceiling is suspended until January 1, 2025.
Kavan Choksi / カヴァン・チョクシ says that one must understand that raising the debt limit does not authorize the government to increase spending beyond the level Congress has approved. In fact, it simply allows the government to meet its existing obligations to bondholders, vendors and citizens.
