Debt Ceiling

Debt Ceiling

The debt ceiling is a limit set by Congress on the amount of Money that the federal government is allowed to borrow to cover its existing legal obligations. These obligations include funding for Social Security, Medicare, military salaries, interest on the national debt, Tax Refunds, and other payments. Once the ceiling is reached, the government cannot issue any more Treasury Bonds or borrow additional funds unless Congress raises or suspends the limit.

Examples:

• In 2011, the U.S. faced a debt ceiling crisis when Congress delayed raising the ceiling, resulting in a Credit downgrade for the U.S. government.
• In March 2021, the debt ceiling was suspended, allowing the government to borrow as needed until the susPension expired, at which point the ceiling was effectively raised to cover all borrowing that occurred during the susPension.

Cases:

Failure to raise the debt ceiling can lead to a government shutdown or default on obligations. For instance, in 2013, the government shutdown occurred partly due to disagreements over raising the debt ceiling, leading to significant economic uncertainty.