The History of the Debt Ceiling: How a Routine Procedure Became Routine Political BrinksmanshipBreaking News
tags: economic history, debt ceiling, Congress, budget
The very phrase “debt ceiling” sounds austere and restrictive, as if it’s a lid on government spending. In fact, the U.S. federal debt limit was first conceived more than a century ago to make it easier, not harder, for the government to borrow money. But it morphed into an explosive political tool with the potential to roil financial markets, since a failure to raise the debt ceiling could eventually result in a first-ever default on some of the government’s obligations.
1. Why is there a debt ceiling?
Its creation, in 1917, was supposed to make it easier to finance World War I by grouping bonds into different categories, easing the burden on Congress to approve each bond separately. With World War II looming in 1939, Congress created the first aggregate debt limit and gave the Treasury Department wide latitude on what bonds to issue.
2. When did it become a political issue?
The limit was routinely raised without incident until 1953. That year, approval was held up in the Senate in an attempt to restrain President Dwight Eisenhower, who had requested an increase to enable construction of the national highway system. The limit has since been raised dozens of times, usually without a fight. But the past quarter century has seen the debt ceiling increasingly become a partisan weapon.
3. What were the biggest fights?
Raising the debt ceiling was among the budget-related disputes that resulted in two shutdowns of the federal government in late 1995 and early 1996. Another debt ceiling crisis occurred in 2011, rattling financial markets and prompting Standard & Poor’s to issue the first-ever downgrade of the U.S. government’s credit rating. A second debt-ceiling faceoff between then-President Barack Obama and congressional Republicans occurred in 2013 as part of a doomed Republican effort to undo the Affordable Care Act. It resulted in the cap being suspended for the first time.