Word: Debt Ceiling
Definition: The statutory authority given by the Congress to the U.S. Treasury to borrow a certain amount of money and/or issue securities to fund the operations of the federal government.
Used in a sentence: “After the Debt-Ceiling Breach: What Day 1 in Default America Might Look Like”
According to the Congressional Budget Office, Congress long has restricted the Department of Treasury’s ability to issue debt and has exercised control over the total amount of borrowing. However, until the summer of 2011, raising the debt ceiling traditionally had been a pro forma occurrence without much policy debate or partisanship in the Congress. The “debt ceiling crisis” that occurred in the summer of 2011 was a political debate and battle between Congressional Republicans and President Obama. The Republicans generally were refusing to increase the federal government’s authority to borrow money without taking steps contemporaneously to decrease federal spending. The debate resulted in enactment of the Budget Control Act of 2011, which raised the debt ceiling but also called for reductions in federal spending. This policy debate brought the “debt ceiling” issue into the public forum and introduced the phrase into the vernacular. Click here for more information about the Budget Control Act. (For more history on the debt ceiling, click here.)
What it Means
The U.S. government, through the Department of the Treasury, regularly borrows money to cover the cost of running the government’s operations, as well as to pay for maturing securities, such as treasury notes, bonds, and bills. Treasury notes, bonds, and bills are issued to raise funds to support the federal government’s activities. This borrowing of money is referred to as public debt. The amount of money the U.S. Department of the Treasury is allowed to borrow typically has been controlled – and limited – by the Congress. This restriction on the federal government’s borrowing authority is known as the “debt ceiling” or “debt limit.” When borrowing approaches the authorized amount it is referred to as “hitting the debt ceiling;” the Congress then must act to increase the debt limit or else the government cannot borrow additional funds. Without authority to borrow additional money and pay for maturing securities, the federal government could default, causing it to default on its debts and resulting in significant domestic and international economic disruption.©2014 Drinker Biddle & Reath LLP. All Rights Reserved