Current Events: The Debt Ceiling

Article I of the U.S. Constitution is said to give the «power of the purse» to the U.S. Congress. Article I, Section 7, Clause 1 states, «All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with amends as on other Bills.» Article I, Section 9, Clause 7 also demonstrates these powers by establishing, «No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.» Since the ratification of the U.S. Constitution, the appropriation of federal money and the issuance of national debt has be under the purview of the legislative branch of the government. For the earlier years of the nation, these appropriations and debts were handled with relative ease by the Congress, but things changed in the early 1900’s.

In 1917, with World War 1 consuming most of the globe, the price tag for the United States’ involvement was up in the air. Congress passed the First Liberty Loan Act of 1917, and in doing so, they set a $5 billion limit on new issues of bonds, and issued $2 billion in one-year certificates of indebtedness to pay for the war efforts. Almost immediately, Congress realized that another law would be necessary to address the costs associated with the war, and so the Second Liberty Bond Act of 1917 was passed. This second bill raised the general limit on borrowing and afforded the Treasury Secretary in the Executive Branch the ability to determine the proper mix of securities to issue, while limiting congressional oversight; for the first time, the Executive Branch was empowered to issue debts in such an unfettered way. On the eve of the second World War, Congress acted dramatically once again. In 1939 Congress set one aggregate debt limit, consolidating the restrictions around specific debt forms, and set the federal debt limit at $45 billion. At the same time, Congress gave the Treasury Department wide discretion over which borrowing instruments they were able to use, as long as the total debt did not exceed the set level, known as the debt ceiling.

Since its creation, the debt ceiling has been raised nearly 100 times, and currently stands in excess of $31 trillion. This routine raising of the debt ceiling happens because the U.S. government regularly spends more than it collects in revenue. With consistent shortfalls in revenue, the government then borrows money by issuing government securities or bonds. If the U.S. hits its debt ceiling, fails to raise it, and consequently does not meet its interest payments to bondholders, the country would be in default. Defaulting on issued debts has not happened during the history of the debt ceiling. Economists caution that such a default would lower the U.S.’s national credit rating, something that already happened in 2011 after a fierce debt ceiling debate within the federal government. Lowering the country’s national credit could lead to increased costs to preexisting debts, and create ripple effects in the overall global economy. On January 19, 2023, according to Treasury Secretary Janet Yellen, the U.S. hit its debt limit and would initiate «extraordinary measures» to avoid default.

This week’s Current Events resources examine the history and effects of the federal debt ceiling. The resources shared provide information and context regarding the formation of the debt ceiling, as well as how it effects policy at the national level, and what a default may mean for everyday Americans, as well as the global economy.

Essential Questions, Vocabulary & Extend the Resources:

What is the debt ceiling?
How does the debt ceiling affect the U.S. federal government? How does the debt ceiling affect the average U.S. person?
Where does the U.S. Treasury Department receive its legal authority to issue debt for the U.S. government? How did that authorization come to be?
What roles does the Fourteenth Amendment to the U.S. Constitution play in the conversation and controversies surrounding the debt ceiling?
What are possible consequences if the U.S. defaults on its fiscal obligations?
In your opinion, should the executive branch of the U.S. government continue to borrow money in excess of the debt ceiling to avoid default?
In your opinion, is the debt ceiling a useful legislative check on executive power or should other mechanisms be instituted in order for the federal government to maintain its fiscal responsibilities?

Click here for a hardcopy of the Essential Questions and Debt Ceiling Vocabulary

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