United States Debt Ceiling
The United States debt ceiling also known as the debt limit is a legislative mechanism that limits the amount of national debt issued by the Treasury through limiting the amount of moey the government can borrow. Debt ceiling therefore is an aggregate figure that’s applied to gross dent which also includes the debt in the intra-government and public accounts.
Around 0.5 percent of the debt isn’t covered by the debt ceiling. There are separate legislations that authorize expenditures as such debt ceiling does not limit government deficits directly. The only thing that it can do is restrain the Treasury from paying the expenditures once the limit is reached but it must have been approved and appropriated already.
Once the debt ceiling is reached and still there is no limit enacted, Treasury resorts to ‘extraordinary measures’ in order to finance the government obligations and expenditures temporarily until a resolution is reached.
So far, the Treasury has not arrived at the point of exhausting extraordinary measures, resulting in default. While this is the case, there are instances when it has appeared like the Congress would allow defaults to take place.
The debt ceiling has been in effect since 1917 when the Second Liberty Bond Act was passed by the United States Congress. Prior to 1917, no debt ceiling was in force though there were parliamentary limitations on the possible debt level that a government could hold. The financial history of the US has been one of government indebtedness and the same applies to most of the North American and Western European countries in the last two hundred years.
- Every year the United States has been in debt except in 1835
- Debts that were incurred during the American Revolutionary War and Articles of Confederation led to the first yearly report on amount of debt
- Since Herbert Hoover, every president has added to national debt which is expressed in absolute dollars. Since March 1962, the debt ceiling in the US has been raised seventy four times. This includes eighteen times under Ronald Regan, 8 times under Bill Clinton, 7 times under George W. Bush and under Barack Obama, 5 times.
Since 1950s, the vote to increase debt ceiling has been a matter of legal budgetary formality between the Congress and the President. It has not been a political issue that would make any elected government unable to pass its yearly budget. Reports made from congress though in the 1990s stated repeatedly that debt limit is an ineffective means to restraining dent growth. The redundancy of the debt ceiling has also led to suggestions that it should be abolished.
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