Also known as the debt limit, the debt ceiling is the amount of gross debt the federal government can have. The current limit is $14.3 trillion, which the government surpassed on May 16, 2011, causing Treasury officials to scramble for bookkeeping maneuvers to buy time. Treasury Secretary Timothy Geithner has set an August 2 deadline for lifting the debt ceiling. Failure to pass a bill could result in the first default in U.S. history.
How is the debt ceiling raised?
The debt limit is written into law, and any increases must be codified in new legislation by Congress and signed by President Obama.
Have lawmakers raised the debt ceiling before?
The debt ceiling history is long. The government first enacted the limit in 1917 in order to issue bonds during WWI. Policymakers have raised the debt limit 74 times since 1962, most recently in February 2010 when they tacked on an extra $1.9 trillion to bring the ceiling to its current level.
What if the government defaults?
A default occurs when the government does not have enough funds to meet any of its legally mandated fiscal obligations, including paying interest on its existing debts, federal employee salaries, tax refunds, and Social Security and Medicare payments. A default could potentially wreck the government’s credit rating, lower demand for U.S. assets, deprive federal workers of their salaries, and deny Social Security benefits to retirees, potentially triggering a wide-reaching economic crisis.
Has the government defaulted before?
To date, the federal government has never defaulted on its securities, though it has in a few cases restructured debt or made some of its interest payments late (in 1790, 1933 and 1979). Until a debt limit deal is reached, the government must draw down its cash balances to avoid issuing new debt, or suspend investments and redeem securities in accounts like the Civil Service Retirement, which bring it closer to defaulting.