Debt Ceiling

In the United States, Congress sets a limit on the total amount the federal government can borrow. Because the government usually spends more than it collects in taxes, it must borrow to pay for spending already approved by Congress. When debt reaches the ceiling, the Treasury cannot borrow more until Congress raises or suspends the limit.

The debt ceiling does not authorise new spending; it allows the government to pay for obligations it has already committed to. If the limit is not raised in time, the Treasury uses temporary accounting measures, but eventually it could be unable to pay all its bills, including interest on government bonds.

For example, in 2011, a prolonged dispute over raising the debt ceiling led one credit rating agency to downgrade the United States’ credit rating for the first time.

Debt ceiling standoffs have recurred, causing market anxiety. Critics argue the limit creates unnecessary risks of default. Few other countries have similar limits; Denmark has one, but it is set so high that it rarely matters.