The United States debt ceiling refers to the statutory limit set by Congress on the amount of money the U.S. government can borrow to meet its financial obligations. It represents the maximum amount of outstanding debt the government can have at any given time.
The purpose of the debt ceiling is to provide a mechanism for Congress to exercise control over the government's borrowing and spending. It serves as a check on the executive branch's ability to accumulate excessive debt without legislative approval.
When the government reaches the debt ceiling, it means that it has exhausted its borrowing authority and can no longer issue additional Treasury securities to borrow money. At this point, the Treasury Department must take measures to avoid defaulting on its financial obligations, such as using extraordinary measures to create additional borrowing capacity.
If the debt ceiling is not raised or suspended, the Treasury Department will eventually run out of these extraordinary measures, and the government risks defaulting on its debt. A default could have severe consequences for the U.S. economy and financial markets, including a potential downgrade of the country's credit rating, increased borrowing costs, and disruptions in global financial markets.
To raise or suspend the debt ceiling, Congress must pass legislation granting the Treasury Department the authority to borrow beyond the existing limit. Historically, lawmakers have raised or suspended the debt ceiling through bipartisan agreements, although these negotiations sometimes involve significant political debates and can be contentious.
It's worth noting that the debt ceiling does not authorize new spending or determine how much the government can spend. It only governs the government's ability to borrow money to finance spending already authorized by Congress through the budgetary process.
The United States has experienced several instances of debt ceiling debates and near-default situations in the past, with the most recent major debate occurring in 2019. The debt ceiling is a complex and politically sensitive issue that continues to be a topic of discussion and negotiation in U.S. fiscal policy.