The US debt limit or debt limit is the legislative limit on the amount of national debt that the US Treasury may issue, limiting how much money the federal government can borrow. The debt ceiling is an aggregate figure that applies to gross debt, which includes debt in public hands and in intra-government accounts. (About 0.5% of debt is not covered by the ceiling.) Since expenditures are passed by separate laws, the debt ceiling does not directly limit the government deficit. As a result, it can only hold the Treasury Department to pay for expenses and other financial obligations once the limit has been reached, but which has been approved (within budget) and adjusted.
When the debt ceiling is actually achieved without an increase in the established limit, Treasury will need to use "extraordinary measures" to temporarily finance government expenditures and liabilities until a resolution can be achieved. The Treasury has never reached the point of exhausting extraordinary measures, resulting in default, although on some occasions Congress appears like it will allow for default to occur. If this situation occurs, it is unclear whether the Treasury will be able to prioritize debt payments to avoid default on bond obligations, but should at least fail on some non-obligation payment obligations. Protracted sophistication can trigger a variety of economic problems including the financial crisis, and a drop in output that will put the country into an economic recession.
US public debt management is an important part of the macroeconomics of the US economy and financial system, and the debt ceiling is a constraint on the ability of executives to manage the US economy. However, there is a debate about how the US economy should be managed, and whether the debt ceiling is the right mechanism to withhold government spending.
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According to Article I Section 8 of the Constitution of the United States, only Congress may authorize loan money for US credits. Since the founding of the United States until 1917, Congress has directly authorized every debt incurred. To provide more flexibility to finance US involvement in World War I, Congress modified the method of endorsing debt in the Second Liberty Bond Act of 1917. Under this Act, Congress sets the aggregate border, or "ceiling," on the total amount of new bonds that can be issued.
The current debt ceiling is an aggregate boundary applied to almost all federal debt, substantially established by the Public Debt Law of 1939 and 1941 which is then amended to alter the amount of the ceiling.
From time to time, political disagreements arose when the Treasury suggested Congress that the debt ceiling would soon be reached and show that the default was imminent. When the debt ceiling is reached, and waiting for an increase in the limit, Treasury may use "extraordinary measures" to buy more time before the ceiling can be raised by Congress. The United States has never reached a point of failure where the Treasury can not afford to pay US debt obligations, although it is close on several occasions. The only exception was during the War of 1812 when the Washington D.C. section including the Ministry of Finance was burned.
In 2011, the United States reached a crisis point of default on public debt. The delay in raising the debt ceiling resulted in the first drop in the US credit rating, a sharp fall in the stock market, and an increase in borrowing costs. Congress raises the debt limit with the Budget Control Act of 2011, which is added to the fiscal cliff when the new ceiling is reached by 31 December 2012.
Another debt crisis crisis arose in early 2013 when the ceiling was reached again, and the Treasury took extraordinary measures to avoid default. The 2013 crisis is resolved, to date, on February 4, 2013, President Barack Obama signed the Budget, the Laws Without Pay 2013 for, in addition to other matters, suspended the debt ceiling until May 19, 2013. After May 19, the debt ceiling was raised to $ 16,699 trillion, the level of debt incurred during the suspension, and the Treasury continued extraordinary measures. Finance Minister Jack Lew told Congress that these measures will be exhausted on October 17, 2013. On October 7, 2013, the Treasury indicates that the debt ceiling and extraordinary measures will be exhausted and that the default will occur on October 17 when interest payments mature.
The debt limit will be reinstated on November 3, 2015. On October 30, 2015, the debt ceiling was once again postponed until March 2017.
Maps United States debt ceiling
Relationship with the federal budget
The process of establishing the debt ceiling is separate and different from the US budget process, and raising the indirect debt ceiling increases or decreases the budget deficit, and otherwise . The Government Accountability Office explains, "debt limits do not control or limit the ability of the federal government to run deficits or incur liability, otherwise it is the limit on the ability to pay the obligations already incurred."
The President formulates the federal budget each year, which Congress must pass, sometimes by amendment, in concurrent resolution, which does not require the President's signature and is not binding. The budget details projected a collection of taxes and expenses and, therefore, determines the amount of loans the government should make in that fiscal year.
Legislative history
Before 1917, the United States did not have a debt ceiling. Congress gives special powers to certain loans or allows Treasury to issue certain debt instruments and individual debt problems for a particular purpose. Sometimes Congress gives Treasury authority over what kind of debt instrument to issue. The United States first instituted debt restrictions under the law with the Second Liberty Bond Act of 1917. This law sets limits on the total amount of debt that can be accumulated through individual debt categories (such as bonds and bills). In 1939, Congress set the first limit on the total accumulated debt on all types of instruments.
Prior to the Budget and Control Control Act of 1974 , the debt ceiling plays an important role that allows Congress to hold hearings and debate on the budget. James Surowiecki argues that the debt ceiling loses its usefulness after this reform to the budget process.
In 1979, noted the potential problem of failure, Dick Gephardt imposed a "Gephardt Rule", a parliamentary rule that considers the debt ceiling raised when the budget is passed. This resolves the contradiction in choosing the allocation but does not choose to fund it. The rules stood until it was lifted by Congress in 1995.
President Ronald Reagan fought bi-partisan opposition from Congress for raising the debt limit in 1981.
The debt and debt crisis of 1995 and 1996
The 1995 ceiling debt debate caused a confrontation on the federal budget, which did not pass, and resulted in the shutdown of the United States federal government 1995 and 1996.
The debt ceiling crisis of 2011
In 2011, Republicans in Congress demanded a deficit reduction as part of raising the debt ceiling. The resulting dispute was settled on August 2, 2011 by the Budget Control Act of 2011. Under "McConnell Rules," the president was allowed to unilaterally raise the debt ceiling. This action can be undone by Congressional action, but this will require a 2/3 majority vote in both assemblies assuming that the president vetoed the action.
On August 5, 2011, S & amp; P issued the first ever federal credit rating downgrade, citing their April warning, the difficulty of bridging the parties and that the resulting deal fell far short of the expected big 'big deal'. The credit downgrade and debt ceiling limitations contributed to the Dow Jones Industrial Average's close of 2,000 points at the end of July and August. After the downgrade itself, DJIA has one of the worst days in history and down 635 points on August 8th.
debt ceiling crisis 2013
Following an increase of the debt ceiling to $ 16.394 trillion in 2011, the United States again reached the debt ceiling by December 31, 2012 and the Treasury began to take extraordinary measures. The fiscal cliffs are resolved with the passing of the American Taxpayer Relief Act of 2012 (ATRA), but no action is taken on the debt ceiling. After a tax cut from ATRA, the government needs to raise the $ 700 billion debt ceiling to finance operations for the remainder of fiscal year 2013. The extraordinary measures are expected to be exhausted by February 15. The Treasury has said that it is not set to prioritize payments, and has given an opinion that it is unclear whether it would be legal to do so. Given this situation, the Treasury will only delay payments if funds can not be collected through extraordinary measures and the debt ceiling is not raised. Economists predict that such an action would cause GDP to contract by 7%, which is greater than the contraction during the Great Recession. The economic damage will worsen as recipients of social security benefits, government contracts, and other government payments reduce spending in response to the freezing of their income.
Under the Budget Law, No Payment of 2013, the two Congressional assemblies elected to suspend the debt ceiling from February 4, 2013 to May 19, 2013. On May 19, the debt limit was raised to approximately $ 16,699 trillion to accommodate lending made during the period suspension.
Debt is not protected by the ceiling
As of October 2013, around 0.5% of debt is not covered by the ceiling. This includes incredible pre-1917 debts.
In December 2012, the Treasury calculated that $ 239 million in the United States Notes is in circulation. This note, in accordance with the ceiling debt law, is excluded from the debt limit of the law. $ 239 million does not include $ 25 million in the United States. Notes issued before 1 July 1929, determined pursuant to the Act of 30 June 1961, 31 U.S.C. 5119, has been destroyed or can not be cured.
Federal Financing Bank debt that in August 2013 amounted to $ 73.1 billion is also not subject to the ceiling.
Suspension of debt ceiling
No Budget, No Pay Act of 2013 suspended, for the first time, US debt ceiling on February 4, 2013 to May 18, 2013. During the period of suspension, Treasury is authorized to borrow as far as is required to fulfill existing commitments. On May 19, the debt ceiling was raised by $ 306 billion to cover loans made during the period of suspension, as well as commitments arising in the preceding period that extraordinary action has been committed, beginning on December 31, 2012. The debt ceiling is suspended on the 17th October to February 7, 2014. On February 12, 2014, the Temporary Suspension Deadline Legal Act was passed, suspending the debt limit until March 15, 2015. At that time, the Treasury took extraordinary steps. On October 30, 2015, the debt ceiling was suspended until March 2017.
Incredible steps
The Ministry of Finance was allowed to borrow the funds needed to finance government operations, as endorsed by the congressional appropriations, to the debt ceiling, with a few minor exceptions. In a letter to Congress April 4, 2011, Treasury Secretary Timothy Geithner explained that when the debt ceiling is reached, the Treasury may declare "a period of debt-issuance delays" as long as it can take "extraordinary measures" to continue to meet federal obligations provided it does not involve new debt problems. These measures are taken to avoid, as far as resources permit, partial government shutdown or default on debt. These methods have been used on several previous occasions where federal debt is approaching its legal limits.
Exceptional measures can include suspending investments in the G Fund from Savings Savings plans of individual federal employee retirement plans. In 2011, extraordinary measures included suspending investments in Pension Funds and Civil Service Personnel (CSRDF), Postal Health Services Pension Fund (Guarantee Allowance Fund), and Stabilization Fund Exchange (ESF). In addition, certain CSRDF investments are also redeemed early. In 1985, the Treasury also exchanged Treasury securities for non-Treasury securities held by the Federal Financing Bank.
However, this amount is not sufficient to cover government operations in the long term. The Treasury first implemented these measures on December 16, 2009 to avoid government closure. These measures were implemented again on May 16, 2011, when Treasury Secretary Geithner announced a "postponement period". According to his letter to Congress, this period could "last until August 2, 2011, when the Treasury projected that the US borrowing authority would be exhausted."
The measures were once again implemented as of December 31, 2012 as the beginning of the 2013 debt-debt crisis with the trigger of default dates ticking through February 2013. The crisis was suspended with a postponement of the limit on February 4, and an unusual cancellation of the size. The measures were again called at the end of the ceiling suspension on May 19, 2013 with the date of expiration of the resources and the date of the default trigger predicted by the Treasury on October 17. The ceiling is once again suspended by law on that date until February 4, 2014.
Default on financial liability
If the debt ceiling is not raised and extraordinary measures are exhausted, the United States government can not legally borrow money to pay its financial obligations. At that point, he must stop making payments unless the treasury has the cash to cover them. In addition, the government will not have the resources to pay interest (and sometimes redeem) government securities when maturing, which will be characterized as default. The default value may affect the US sovereign risk rating and the interest rate that will be required to repay the debt in the future. The United States has never failed to meet its financial obligations, but the periodic crisis associated with the debt ceiling has led to downgrades by some rating agencies and warnings by others. GAO estimates that delays in raising the debt ceiling during the 2011 debt crisis increased the borrowing costs for the government by $ 1.3 billion in fiscal 2011 and noted that the delay would also increase costs in the coming years. The Center for Bipartisan Policy extended GAO estimates and found that the delay increased borrowing costs by $ 18.9 billion over ten years.
Some authors have expressed the view that if extraordinary measures are exhausted, the executive branch has the authority to determine what obligations are paid and what does not, even though the Treasury has stated that all obligations are on the same footing under the law. The authors argue that the executive branch may choose to prioritize interest payments on bonds, which would avoid a direct default, directly on state debt. During the debt ceiling crisis of 2011, Treasury Secretary Timothy Geitner believes that prioritizing interest payments will not help because government spending will need to be cut by unrealistic 40% if the debt ceiling is not raised. In addition, a default on non-debt obligations will still undermine America's creditworthiness according to at least one rating agency. In 2011, the Ministry of Finance suggested that it can not prioritize certain types of expenditures because all expenditures are on the same footing under the law. In this view, when extraordinary measures are exhausted, no payments can be made except when money (such as tax receipts) is in the treasury, and the United States will fail to meet all its obligations. The CBO notes that prioritizing will not avoid the technical definition found in the Black Legal Dictionary where the standard is defined as "failure to make payments when due."
Debate on debt ceiling
Voting to increase the debt ceiling usually (since the 1950s) became the legal budget formalities between the President and the Congress. The debt ceiling is not historically a political issue that will make the elected government fail to pass the annual budget. Reports to Congress (from OMB and other sources) in the 1990s repeatedly state that debt limits are an ineffective way to restrain debt growth.
James Surowiecki argues that the debt ceiling initially serves a useful purpose. When introduced, the president has a stronger authority to borrow and spend it at will. However, after 1974 and the Nixon Administration, the US Congress began issuing a comprehensive budget resolution that specifically determined how much money the government could spend.
Obviously the redundancy of the debt ceiling has led to suggestions that it should be removed altogether. Some members of the Democratic Council, including Peter Welch, proposed the removal of the debt ceiling. This proposal has the support of several economists such as Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics.
Source of the article : Wikipedia
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