Debt Ceiling
The statutory limit on the total amount of money the US federal government is authorized to borrow to meet its obligations.
What is Debt Ceiling?
The US debt ceiling is a legislatively set maximum on the total outstanding public debt the federal government may carry, established under the Second Liberty Bond Act of 1917. When the government spends more than it collects in taxes (running a deficit), it must borrow by issuing Treasury securities, and the ceiling limits total cumulative borrowing. When the ceiling is reached, the Treasury deploys 'extraordinary measures' — temporary accounting maneuvers — to continue paying obligations without new borrowing. If Congress does not raise or suspend the ceiling before those measures are exhausted, the government faces a potential default on its existing debt obligations — a scenario with severe global financial consequences given the dollar's reserve currency status. The debt ceiling has been raised or suspended over 100 times since 1917 and is widely criticized by economists as a poor mechanism for controlling spending.
Example
In June 2023, the US federal debt ceiling — then at $31.4 trillion — was suspended until January 1, 2025, following bipartisan negotiations that averted a potential default. Treasury Secretary Yellen had warned that the US would default on its obligations as early as June 1, 2023 without congressional action. Financial markets exhibited stress: credit default swap spreads on US debt spiked and Fitch Ratings downgraded the US from AAA to AA+ in August 2023, citing 'repeated debt-limit political standoffs' as a governance concern.
Source: US Treasury — Debt Limit