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What is the Debt Ceiling?

Updated on February 6, 2017

The Debt Ceiling

What is the debt ceiling?

The debt ceiling is a limit set by congress on the amount of money the federal government can borrow. The ceiling applies to debt owed to the public, e.g., anyone who buys U.S. bonds, plus debt owed to federal government trust funds including Social Security and Medicare.

The first debt ceiling limit was established in 1917 and was set at $11.5 billion. It was used to finance the U.S. entry into WW I. Congress gave the Treasury Department authority to borrow money as needed.Previously, Congress had to sign off every time the federal government issued debt.

Source

How is the Ceiling Determined?

The debt ceiling is similar to purchasing with a credit card. But if the limit does not cover the amount of debt incurred, the holder of the card asks for the credit limit to be raised to cover the new debt. Each time congress votes to hike spending or cut taxes and does not pay for those initiatives, it impacts the debt ceiling. Thus, causing the need for the debt ceiling to be raised in the future.

What happens if Congress Doesn't Raise the Debt Ceiling?

The Treasury is not be able to borrow any more money and the government falls short of what it needs to pay all its bills in full. This includes funding government operations and paying creditors and contractors.

Congress could immediately trigger spending cuts or tax increases that would more than likely cause serious economic problems Or they could default on obligations with the risk of crippling the economy and sending global markets into financial chaos.

What did the Super-Committee in 2012 have to do with this?

The following paragraphs describe the events of the debt ceiling debacle in 2012.

Because of bipartisan bickering as to whether lower taxes and cut spending or raise taxes and increase spending, Congress established the Budget Control Act.

This empowered a Super Committee comprising representatives of both parties to negotiate how to achieve at least $1.2 trillion of debt reduction.

Was the Super Committee Successful in 2012?

No - The committee agreed to disagree and as a result, it triggered almost $1 trillion in automatic federal spending cuts, These cuts include defense as well as non-defense spending that will take effect in January of 2013. Non defense spending pays for many popular government agency that ensure our well being, such as FDA, USDA, FAA and many others.

This bipartisan bickering also caused the S&P bond rating agency to downgrade government bond ratings from AAA to AA+.

Update 5/5/2013, The Sequester

It's been almost a year since I published this hub. Little did I know what I was describing in the above paragraphs would lead to the budget cut Sequester enacted on March 1, 2013. The reductions are supposed to be $84.4 trillion in 2013 with similar cuts scheduled for 2014 to 2021. The cuts are supposed to be spread evenly between defense and non-defense spending.

Major programs like Social Security, Medicaid, federal pay (including military pay and pensions) and veterans' benefits are exempt. Medicare spending will be reduced by 2% per year. The largest impact we have seen so far this year is created by the delays in air traffic created by furloughing air traffic controllers. However, congress was quick to fix that when their flights were delayed while they were going home for spring break. They somehow found the funding by robbing Peter to pay Paul to reinstate the air traffic controllers.

Update March 16, 2015

Below is a copy of a letter from John Lew, the current Treasury Secretary to John Bohener, the current Speaker of the house.

Conclusion

So arguing over the debt ceiling is academic. It's like arguing if the barn door should be closed after the horse has left the barn. It is essentially arguing over whether to pay the bills the country has already incurred and which Congress has already approved.

Since March 1962, debt ceiling increases have been enacted 76 times. According to the Congressional Research Service.Congress has voted to raise the ceiling 11 of those times since 2001. If my math is correct that's once each year! The ceiling is currently set at $18.394 trillion. Treasury Secretary John Lew estimates that U.S. borrowing could hit the debt ceiling by the end of 2015.

I have learned a lot from this research, as I hope you have. This begs the question is congress going to perform this political theater, each time it is necessary to raise the debt ceiling. Will there be another super-committee convened? Does congress use the debt ceiling as a political football? Will the credit rating agencies downgrade U.S credit if an impasse is reached?..Stay tuned to find the answers.

(This reminds me of when my Mother used to listen to a soap opera on the radio called Portia Faces Life. It would always end with the question. "Will the little girl from the mining town find love and happiness with the rich and handsome lord Henry Bently?")...Thanks for listening!


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    • profile image

      Howard Schneider 4 years ago from Parsippany, New Jersey

      There will be this political theater over the debt ceiling as long as these Tea Party Representatives are holding sway over our Congress. Truthfully we are one of the few countries that has a mechanism to raise the debt ceiling. Other countries just pay their debt because they are obligated to do so. We should be the same way instead of having to submit to this Far Right black mail.

    • peoplepower73 profile image
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      Mike Russo 4 years ago from Placentia California

      HSchneider: Wow, that was fast. I just finished publishing this hub. Thanks for the quick comments. I agree with you. I think the super committee is an exercise in futility and is just another form of kicking the can down the road.

    • tillsontitan profile image

      Mary Craig 4 years ago from New York

      You are certainly helping me re-learn about government. What I learned in school has long since been forgotten plus things have changed quite a bit. It would seem the Super Committee arguing over the debt ceiling is almost as futile as us arguing over the debt ceiling.

      Your writing is interesting and oh so informative. So much I don't know and probably never knew. Thanks for the education.

      Voted up, useful and interesting.

    • peoplepower73 profile image
      Author

      Mike Russo 4 years ago from Placentia California

      tillsontitan: Thank you so much for the comments. I'm learning right along with you. But now that I'm older and retired, it seems that staying informed and sharing what I learn is the appropriate thing to do. You are right about arguing over these issues. It seems they are just gaming us. As always, thanks for stopping by and the vote up.

    • Dr Billy Kidd profile image

      Dr Billy Kidd 4 years ago from Sydney, Australia

      The Budget Control Act of 2011 was an act passed by Congress and signed by the president. It was composed of members chosen by the heads of both parties in the House and Senate. Obama signed the bill. The bill established the Joint Select Committee on Deficit Reduction, known as the supercommittee. Obama did not create it, just OK-ed it without a veto: http://www.gpo.gov/fdsys/pkg/BILLS-112s365enr/pdf/...

    • UnnamedHarald profile image

      David Hunt 4 years ago from Cedar Rapids, Iowa

      Interesting hub, peoplepower. Political theater indeed. I'm curious to see how the military-industrial complex games the system when the two parties do their dance and cinderella's coach turns back into a pumpkin.

    • peoplepower73 profile image
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      Mike Russo 4 years ago from Placentia California

      Dr Billy Kidd: Thanks for the input. I verified what you said and I'll change it to be consistent with your comment. Thanks for dropping by.

    • peoplepower73 profile image
      Author

      Mike Russo 4 years ago from Placentia California

      UnnamedHarald: So am I. At least now I understand the dance and the music. Thanks for the comments.

    • profile image

      mackyi 4 years ago

      Peoplepower73, thanks for this lesson on the Super Committee and the Debt Ceiling. Personally, if my prediction is right, I think you will see another raising of the debt ceiling in the near future(depends on the outcome of this upcoming Presidential election). I have come to the conclusion that these Politicians don't have the first clue as to what needs to be done to stop this country from going in the direction it's heading. The way I see it, it's all about self-interest and greed, rather than a collaborative effort to turn this country around.

    • peoplepower73 profile image
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      Mike Russo 4 years ago from Placentia California

      mackyi 41 : I agree with you. It's being used for congress to say, we are not going to pay for what we have already spent until we get our way. They hold the country hostage up until the last minute and then approve the new limit anyway with token measures. I believe the more people who understand this, the more we will be able to put this political theater into proper perspective the next time it is used. Thanks for your comments, please feel free to share this.

    • WannaB Writer profile image

      Barbara Radisavljevic 4 years ago from Templeton, CA

      It appears that super committees don't accomplish much except to enable Congress as a whole to pass the buck to avoid having to take responsibility for their own decisions. So much being spent by the federal government is being wasted in programs that not only don't benefit anyone, but actually harm citizens. Example: blowing up dams to save the Coho Salmon that may be in worse condition afterwards than it is now. Ask the people of Siskiyou County, California, who will lose their ranches, their land values on which they had planned to retire, and their livelihoods. Why? Because the federal government wants to experiment. Four dams that produce clean energy that were built by the government in the first place to solve problems are slated to be destroyed, supposedly for the sake of the environment, when residents have studies that show removing the dams will damage the environment. It will also cost billions. Studies have shown that there are better alternatives to save the Coho Salmon that will cost much less and leave lands and environment intact. I'd leave a link to the supporting details, but I'm not sure it's allowed.

      The more we raise the debt ceiling instead of cutting spending that benefits no one but special interests and political agendas most Americans would not support if they were honestly explained, the more money the politicians can spend unwisely.

    • peoplepower73 profile image
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      Mike Russo 4 years ago from Placentia California

      WannaB Writer: I think I saw a piece on TV about the Coho Salmon in that county and how the government's decision about those dams is effecting the native indian population as they use that river and salmon as their livelihood. I'm beginning to find out that the debt ceiling and everything about it is relative. Our debt is all based on funny money that's not backed by anything. It's called Fiat currency. I have to do more research and write another hub about it. Thanks for your information on the Coho Salmon.

    • WannaB Writer profile image

      Barbara Radisavljevic 4 years ago from Templeton, CA

      PeoplePower,

      I spent last Wednesday at a workshop on defending rural America and bought a bunch of DVDs (which are available as videos at YouTube for free). I also bought a book called simply "Money." It explains the history of money. I've only read two chapters so far but it mentions the Fiat currency you referred to. My husband and I are in the process of watching the DVDs and reading the book to see if the information checks out with what he has learned in his historical and biographical reading in this area of knowledge.

    • peoplepower73 profile image
      Author

      Mike Russo 4 years ago from Placentia California

      WannaB Writer: That sounds like a great workshop. Maybe you can create a hub on what you and he learn and share it with everybody. Thanks for the update. I'm doing more research myself.

    • Jeff Gamble profile image

      Jeff Gamble 4 years ago from Denton, Texas

      Great hub peoplepower - well done!

    • peoplepower73 profile image
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      Mike Russo 4 years ago from Placentia California

      Jeff Gamble: Thank you I'm just trying to get the word out as I learn this stuff. I think the more we can put into proper perspective, the better off this country will be.

    • profile image

      An AYM 4 years ago

      I always enjoy your Hubs. It's nice to read something informative and well structured without the typical slant of "This is a problem because of everyone that isn't in my associated political party".

    • peoplepower73 profile image
      Author

      Mike Russo 4 years ago from Placentia California

      An AYM; It's also nice to receive great comments from people like you. I do try to keep my political views out of my hubs and be as objective as I can. But sometimes it's difficult and my views really do creep in. Thanks for stopping by.

    • peoplepower73 profile image
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      Mike Russo 4 years ago from Placentia California

      This hub was originally published in 2012 while the debt ceiling was being argued. I have changed this hub to make it current with the current debt ceiling issues.

    • peoplepower73 profile image
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      Mike Russo 3 years ago from Placentia California

      I have updated this hub to include the Sequester that was result of the Super Committee not being able to reach agreement.

    • peoplepower73 profile image
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      Mike Russo 2 years ago from Placentia California

      I have updated this hub to include a letter from Treasury Secretary John Lew to Speaker of the House John Boehner requesting that the debt ceiling be approved without partisan bickering.

    • profile image

      veggiechick 16 months ago

      I think it's disgusting. Wondering what some of those in congress would say if all Americans decide we aren't going to pay our bills anymore. Not going to pay our taxes, which we have incurred during the year. It's a debt owed, and so we say to the rest of the world, "we are moochers". We don't pay our bills, and we will yet AGAIN use someone we call a debt ceiling to put more pork into it, and hope that the rest of the world won't lower our creditworthiness.

    • peoplepower73 profile image
      Author

      Mike Russo 16 months ago from Placentia California

      The right wing holds the people hostage when it comes time to pay our bills, by adding additional conditions to agree to paying the bills. They will even go so far as to shut the government down until there conditions are met. They are like spoiled brat children.

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