Overview
The statutory limit on the public debt, often called the “debt ceiling,” is a legal limit on the Treasury’s ability to borrow funds necessary to finance already incurred obligations of the United States. If Congress passes spending measures that exceed incoming revenues, but prevents the Treasury from borrowing funds to cover the deficit, the nation would default on its legal obligations to lenders, Social Security beneficiaries, veterans, Medicare providers and all others to whom payments are legally owed. Default has never occurred and would have catastrophic effects on the ability of the U.S. Treasury to issue bonds in the future, as well as destabilizing global financial markets.
What are extraordinary measures?
When the U.S. Treasury is nearing the debt limit, it can take so-called “extraordinary measures” that enable government borrowing to continue within the statutory limit for a period of time, including:
- Suspending investments of the Thrift Savings Plan’s G Fund;
- Suspending investments of the Exchange Stabilization Fund;
- Suspending the issuance of new securities to the Civil Service Retirement and Disability Fund (CSRDF) and Postal Service Retiree Health Benefits Fund (PSRHBF);
- Redeeming, in advance, securities held by the CSRDF and the PSRHBF in amounts equal in value to benefit payments due in the near future;
- Suspending issuance of new State and Local Government Series (SLGS) securities and savings bonds; and
- Exchanging Federal Financing Bank securities, which do not count against the debt limit, for an equal amount of Treasury securities held by the CSRDF.
Recent Developments
For up-to-date developments, see the U.S. Treasury’s Debt Limit page
- March 1, 2019: Section 30301 of the Bipartisan Budget Act of 2018 suspended the debt limit through March 1, 2019. The debt limit will then be reset at a level that accommodates federal obligations incurred during the suspension period. The U.S. Treasury will then use cash balances, incoming revenues, and “extraordinary measures,” such as disinvesting certain government trust funds, to meet federal obligations. One unofficial estimate projects those measures will enable Treasury to meet government obligations until “at least mid-summer 2019.”
- Feb. 9, 2018: The debt limit issue was addressed when the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123) was enacted on February 9, 2018. Section 30301 of the BBA 2018 suspended the debt limit through March 1, 2019.
- Jan. 31, 2018: CBO issued a report projecting that “if the debt limit remains unchanged, the ability to borrow using extraordinary measures will be exhausted and the Treasury will most likely run out of cash in the first half of March 2018.”
- Jan. 30, 2018: Treasury Sec. Mnuchin sent a letter to Congress notifying them of cash management actions to sustain Treasury operations through Feb. 28, 2018 and urging Congress to “increase the debt ceiling as soon as possible.”
- Jan. 17, 2018: a private sector report projects the drop-dead date may arrive in early March.
- The recent suspension of the debt ceiling expired December 8, 2017. CBO projects that “on December 9 federal debt will be at the statutory limit and the Treasury will need to use ‘extraordinary measures’ to continue to raise cash. Those measures would probably be exhausted in late March or early April.”
- Nov. 1, 2017: Treasury Dept. said in a November 1, 2017 statement that extraordinary accounting measures will “allow the government to continue to meet its obligations through January 2018,” despite the current suspension of the debt ceiling ending on December 8. “It is currently too early to provide a more precise forecast as to how long the extraordinary measures will last,” Acting Assistant Secretary for Financial Markets Monique Rollins said in Treasury’s latest quarterly refunding statement.
- Oct. 31, 2017: House Democratic Whip Steny H. Hoyer said he does not expect debt limit negotiations to coincide with year-end spending talks, according to Congressional Quarterly.
- Sept 25, 2017: President Trump said earlier this month, “”For many years, people have been talking about getting rid of [the] debt ceiling altogether, and there are a lot of good reasons to do that.” Three Senate Democrats introduced legislation last week to abolish the debt ceiling, but support from the GOP majority is unlikely, with many seeing it as periodic leverage to push through budget reform measures.
- Sept. 7, 2017: House Conservatives oppose Trump debt ceiling deal with Democrats (debt ceiling/Harvey aid/continuing resolution)
- Sept. 7, 2017: Trump, Schumer agree to pursue plan to repeal the debt ceiling
- Aug. 2017: BPC Debt Limit Analysis August 2017
- Aug. 7, 2017: Column by Ed Kleinbard: “The Debt Ceiling Crisis is Real”
- July 28, 2017: Treasury Secretary Mnuchin in letter to Congress states it “is critical that Congress act to increase the nation’s borrowing authority by September 29, 2017.” July 28 Treasury Letter to Congress on Debt Ceiling
- June 29, 2017: “If the debt limit remains unchanged, CBO projects that the Treasury will likely run out of cash in early to mid-October—leading to delays of payments for the government’s programs and activities, a default on its debt obligations, or both.” CBO Federal Debt Ceiling June 2017
- In the Balanced Budget Act of 2015, Congress suspended the debt ceiling through March 15, 2017, at which time the statutory limit was automatically re-set at the current debt level.
- March 7, 2017: CBO released a report on the debt ceiling stating, “If the current suspension is not extended or a higher debt limit is not legislated before March 16, the Treasury will, from that date forward, have no room to borrow under standard operating procedures. Therefore, to avoid breaching the ceiling, the Treasury would begin taking the extraordinary measures that would allow it to continue to borrow for a limited time. Continued use of those measures, along with regular cash inflows, should allow the Treasury to finance the government’s activities for the next several months without an increase in the debt ceiling.” (emphasis added) The CBO report provides a useful description of the extraordinary measures that can be taken to delay the next debt ceiling increase, as well as useful information on federal cash flows and Treasury auctions.
Reports and Background on the Debt Ceiling:
- CRS: Debt Limit Since 2011 (Dec 2018)
- CRS: Votes on Measures to Adjust the Statutory Debt Limit, 1978 to Present (2018)
- CRFB; Everything You Should Know About the Debt Ceiling (2018)
- CRS: Clearing the Air on the Debt Limit (2017)
- CRS: Legislative Procedures for Adjusting the Public Debt Limit: A Brief Overview (2016)
- CRS: Has the U.S. Government Ever “Defaulted”? (2016)
- CRS: Reaching the Debt Limit – Background and Potential Effects on Government Operations (2015)
- GAO: Debt Limit – Market Response to Recent Impasses Underscores Need to Consider Alternative Approaches July 2015
- CRS: Reaching the Debt Limit – Background and Potential Effects on Government Operations March 27 2015
- CBO: Debt Ceiling Projections Aug 25 2015
- “Accidental default of 1979,” by Donald Marron Oct 4 2013
- GAO: Analysis of 2011-12 Actions Taken and Effect of Delayed Increase on Borrowing Costs July 2012