Just like individuals and businesses, governments often borrow money to finance various operations. The bulk of the United States’ outstanding debt is in the form of treasury securities, and the total amount owed by the federal government is known as the national debt. As of this article’s last update, the national debt stood at around $31.46 trillion.
What Is the Debt Ceiling in Simple Terms?
The debt ceiling (also called the debt limit) is the maximum amount of borrowed money the United States government is allowed to owe at any given time. In other words, it’s a borrowing restriction that the federal government enforces on itself—essentially a self-imposed cap on the national debt.
The debt ceiling has existed since 1917, when it was created as part of the Second Liberty Bond Act, but it has been raised and suspended many times over the ensuing decades. As of this article’s last update, the debt limit stood at $31.4 trillion.
Callout: The U.S. and Denmark are the only two countries worldwide with legal debt ceilings.
What Is the Purpose of the Debt Ceiling?
The debt ceiling was created during World War I to help regulate government spending and encourage the federal government to be financially responsible with its use of debt. In the same way a credit limit exists on a credit card to prevent an individual from spending too much borrowed money, the debt ceiling exists to discourage overborrowing on behalf of the U.S. government.
What Happens When the National Debt Approaches the Debt Ceiling?
The national debt has approached the debt ceiling on countless occasions, and in most of these, Congress has acted to raise or suspend it. So long as the government is able to borrow new money to make payments on its existing debt, it doesn’t risk default—it simply increased the already gargantuan national debt.
Between 1960 and 2021, congress raised the debt ceiling 78 times. More recently, however, moves to…
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