Isabella Carter
The statutory debt limit, or debt ceiling, is the maximum amount of debt that the US government can take on. Once the government reaches this limit, it can no longer borrow money to pay its financial obligations and must cease making payments unless there is enough cash on hand to cover them. There is debate over whether raising the debt ceiling is a constitutional obligation. Some scholars argue that the debt ceiling law is unconstitutional and that the US government cannot default on its debt, pointing to Section Four of the 14th Amendment of the US Constitution, which states that the validity of the public debt of the United States...shall not be questioned. Others argue that refusing to raise the debt ceiling would lead to the Treasury defaulting on its debts, causing catastrophic economic consequences. Congress has routinely raised the debt ceiling over the years, and since 1960, it has acted 78 times to permanently raise, temporarily extend, or revise the debt limit.
| Characteristics | Values |
|---|---|
| What is the debt ceiling? | The limit to the amount that the U.S. Treasury can borrow to meet its obligations |
| Who sets the debt ceiling? | Congress |
| Can the debt ceiling be changed? | Yes, Congress has the power to raise the debt ceiling, which it has done 78 times since 1960. |
| What happens if the debt ceiling is not raised? | The U.S. government would be unable to borrow money to pay its financial obligations and would default on its debts. |
| What are the consequences of not raising the debt ceiling? | It would have catastrophic economic consequences, causing another financial crisis and threatening jobs and savings. |
| Is raising the debt ceiling a constitutional obligation? | Many scholars argue that the debt ceiling law is unconstitutional as per Section Four of the 14th Amendment of the United States Constitution, which states that "the validity of the public debt of the United States...shall not be questioned." |
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What You'll Learn
The US government's inability to borrow money
The debt ceiling does not control the ability of the federal government to run deficits or incur obligations. Instead, it restricts the government's ability to pay obligations already incurred. If the debt ceiling is not raised and extraordinary measures are exhausted, the US government cannot legally borrow funds to meet its financial commitments. As a result, the government must halt payments unless the Treasury has sufficient cash reserves.
The consequences of failing to raise the debt ceiling can be severe. Firstly, it could lead to a default on government securities, negatively impacting the country's sovereign risk rating and increasing future borrowing costs. Secondly, it could result in government agencies restricting spending or temporarily suspending operations, causing disruptions to essential services. Finally, and most importantly, it could trigger another financial crisis, endangering the jobs and savings of Americans and derailing the country's economic recovery.
Since 1960, Congress has acted 78 times to address the debt limit, demonstrating a bipartisan understanding of the severity of this issue. However, the debate around raising the debt ceiling often leads to tense budget negotiations and occasional government shutdowns. Some scholars argue that the debt ceiling law is unconstitutional, citing Section Four of the 14th Amendment, which states that "the validity of the public debt of the United States... shall not be questioned."
In summary, the US government's inability to borrow money due to the debt ceiling has far-reaching economic and social implications. While Congress has historically taken action to prevent a default, the ongoing debate and potential inaction on raising the debt ceiling threaten the country's financial stability and the well-being of its citizens.
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The US government's obligation to meet financial obligations
The US government's obligation to meet its financial commitments is a highly debated topic, with some scholars arguing that the debt ceiling law is unconstitutional. The debt ceiling, or statutory debt limit, is the maximum amount of debt that the US government can take on. It is set by Congress and includes interest payments on existing debt. Once the government reaches the debt ceiling, it cannot borrow more money to meet its financial obligations.
The US Constitution grants Congress the authority to borrow money. In 1939, Congress passed the Public Debt Act, delegating its power to borrow to the Treasury, provided that the total debt remained under the debt ceiling. Since then, Congress has routinely raised the debt ceiling to accommodate increased spending and budget deficits. As of 2012, Congress has acted 78 times to raise, temporarily extend, or revise the debt ceiling.
The US government's inability to raise the debt ceiling can have significant economic consequences. If the debt ceiling is not raised, the government may be unable to borrow money to meet its financial obligations, leading to a potential default. A default on its financial obligations could precipitate a financial crisis, impacting the jobs and savings of Americans. Additionally, a default may affect the country's sovereign risk rating and increase borrowing costs for the government.
Supporters of raising the debt ceiling argue that refusing to do so would lead to catastrophic consequences for the US economy. They contend that a default would disrupt Social Security payments, military salaries, and various segments of the economy, resulting in a severe national economic crisis. On the other hand, critics argue that the executive branch can prioritize certain payments to avoid an immediate default, although this approach may not be effective in preventing a financial crisis.
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The potential for a US sovereign risk rating downgrade
In 2011, S&P downgraded the US sovereign credit rating, citing concerns over the nation's ability to address medium- and long-term budgetary challenges. This was followed by a downgrade from Moody's in 2013, which warned of the risk of default if the debt ceiling was not raised. The 2011 downgrade resulted in a decline in global stock markets, with all three major US stock indexes falling between five and seven percent in a single day. However, US treasury bonds and the dollar gained value, indicating a flight to safe assets.
Fitch Ratings, another major credit rating agency, retained the US's triple-A rating in 2011 but changed its outlook to negative, citing the high debt of the US government and the lack of a fiscal consolidation plan. In 2023, Fitch again placed its AAA rating on negative watch, warning of the risk of a default if the debt limit was not raised. This led to a downgrade in August 2023, with Fitch lowering the long-term credit rating from AAA to AA+.
Moody's also downgraded the US credit rating in 2025, citing growing debt caused by increased federal spending and reduced revenues from tax cuts. This downgrade highlighted the risks of rising national debt and the failure of successive administrations to address large fiscal deficits. The impact of this downgrade on the markets is yet to be seen, but it could result in higher interest rates and a shift of capital towards other highly-rated countries.
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The US Constitution's 14th Amendment, Section 4
The debt ceiling is the limit set by Congress on the amount the Treasury can borrow to pay bills and honour existing commitments. The Constitution grants Congress the authority to borrow on behalf of the United States.
The 14th Amendment, Section 4 of the US Constitution states:
> The validity of the public debt of the United States, authorized by law, including debts incurred for the payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States.
This amendment was passed by Congress on June 13, 1866, and ratified on July 9, 1868. It extended liberties and rights granted by the Bill of Rights to formerly enslaved people, granting citizenship to "All persons born or naturalized in the United States".
Section 4 of the 14th Amendment establishes the validity of the public debt of the United States and prohibits any questioning or denial of it. It specifically includes debts incurred for the payment of pensions and bounties for services in suppressing insurrection or rebellion.
The US government has never defaulted on its obligations, and failing to increase the debt limit would cause the government to default on its legal obligations, which would have catastrophic economic consequences.
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The US Congress's power to borrow money
The US Constitution grants Congress the power to borrow money. This power was delegated to the Treasury in 1939 when Congress passed the Public Debt Act, which set a statutory debt limit. This limit is the maximum amount of debt that the US government can take on and includes interest payments on existing debt. Once the government reaches this limit, it cannot take on new obligations and the Treasury is unable to borrow money to meet its existing obligations.
The process of setting the debt ceiling is separate from the US budget process, and raising the debt ceiling does not directly impact the budget deficit. The debt ceiling legislation only allows the government to finance existing legal obligations. The US government has always acted to raise, temporarily extend, or revise the debt ceiling when necessary. Since 1960, Congress has taken such action 78 times, with 49 of these occurrences under Republican presidents and 29 under Democratic presidents.
Failing to increase the debt ceiling would have significant economic consequences. The government would default on its legal obligations, leading to another financial crisis and threatening the jobs and savings of Americans. Supporters of raising the debt ceiling argue that refusing to do so would lead to a national economic crisis, with those relying on Social Security and members of the military going unpaid.
Some scholars argue that the debt ceiling law is unconstitutional, pointing to Section Four of the 14th Amendment, which states that "the validity of the public debt of the United States... shall not be questioned." They contend that it is unconstitutional for the US government to default on its debt. Additionally, Article I, Section 8 of the original 1787 Constitution states that "The Congress shall have Power... To borrow money on the credit of the United States," indicating that Congress has the power to borrow but must avoid default.
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Frequently asked questions
The debt ceiling is the limit to the amount that the U.S. Treasury can borrow to meet its obligations.
If the debt ceiling is not raised, the U.S. government is legally unable to borrow money to pay its financial obligations and must cease making payments unless there is cash on hand to cover them.
Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations, threatening the jobs and savings of everyday Americans.
The U.S. Constitution does not explicitly state that raising the debt ceiling is a constitutional obligation. However, some scholars argue that it is unconstitutional for the U.S. government to default on its debt, citing Section Four of the 14th Amendment, which states that "the validity of the public debt of the United States...shall not be questioned."
Congress has the power to set and raise the debt ceiling. Since 1960, Congress has acted 78 times to permanently raise, temporarily extend, or revise the debt limit.
