How Debt Limit Effects Our Economy
The debt ceiling is a limit imposed by Congress on how much debt the U.S. can carry at any given time. It's like a limit placed by your credit card company. The only difference is that the government can keep spending above the limit. The thing is, is that it just can't pay the bills it’s caused by issuing new debt. It's like a credit card that allows you to spend above your limit, but just won't pay the bills that come above the limit.
Congress created the debt ceiling in the Second Liberty Bond Act of 1917. It allowed the Treasury Department to issue Liberty Bonds so the U.S. could finance its World War I military expenses. These longer-term bonds had lower interest payments than the short-term bills Treasury used before the Act. Congress now had the ability to control overall government spending for the first time. Before that, it had only issued authorization for specific debt, such as the Panama Canal or other short-term notes.
However, this is no longer necessary. In 1974, Congress created the budget process that allows it to control spending, that’s why the debt ceiling is usually raised. More than two-thirds of the United States’ debt is held in the United States, either directly by individual bondholders or by institutions. When the budget process works smoothly, both houses of Congress and the President have already agreed on how much will be spent. There's really no need for a debt ceiling because it simply allows the government to borrow money to pay for the bills it has already approved.
For this reason, the debt ceiling was usually raised without much discussion between Congress and the President. In fact, during the last ten years, Congress increased the debt ceiling ten times, four times in 2008 and 2009 alone. If you look at the debt ceiling history, you'll see that Congress doesn’t have a problem raising the debt ceiling some more. Technically, the debt ceiling is only...