The debt ceiling is the legal limit on U.S. federal government borrowing. As of the middle of 2011, the debt ceiling was set at $14.294 trillion. Accrued debt in the U.S. hit that mark on the morning of May 16, 2011.
The cap was originally set by Congress in 1917 at $11.5 billion in order to allow for more flexibility as the nation entered World War I. Before this was set, Congress had to sign off every time the federal government issued debt.
Debt ceiling crisis of 2011
By taking various extraordinary measures such as suspending investments in federal retirement funds, Treasury Secretary Tim Geithner was able to bring total debt down enough to allow the government to continue borrowing until Aug. 2, 2011. The Aug. 2 date actually represented a three-week extension of the original date. The reason for the extension was that the U.S. government had taken in more tax revenue than expected and eased the country's borrowing needs.
The Obama Administration said that if the $14.29 trillion debt ceiling was not raised, the government would ultimately have to default on its debt. Without borrowing, it would not be able to pay both the government's daily bills and the investors whose bonds came due.
Solutions Brought To The Table
Lawmakers met in July and August of 2011 to try to create a deal to increase the nation's $14.3 debt ceiling. Republicans, who controlled the House of Representatives, said they would only vote to increase the debt limit in exchange for a deficit-reduction package larger than the amount of the increase. Democrats were in favor of such a package, but while Republicans wanted the package to include only spending cuts, Democrats said it must also include revenue increases as well.
After a caucus meeting to round up the votes needed for House passage, Republicans said that Speaker John Boehner had agreed to modify his plan, which raised the debt ceiling only enough to last a few months, to make the next round of spending cuts and debt relief contingent on Congressional approval of a balanced-budget amendment to the Constitution. That won pledges of enough votes to allow Boehner to pass his bill, which was put on hold at the last minute with only Republican votes, including those of many from the Tea Party faction.
A decision was reached July 31, 2011 to raise the U.S. debt limit by at least $2.1 trillion and slash government spending by $2.4 trillion or more. The House planned votes Aug. 1 and it was anticipated the Senate may follow suit to consider the agreement.
Shortly after the debt ceiling agreement was reached, Standard & Poor's announced it would reduce its credit rating for long-term U.S. government debt by one notch, from AAA, the highest rating, to AA+.
A bipartisan committee of Congress was also slated to report by November of 2011 with a proposal to further reduce the deficit, which would then be put before the entire Congress for an up or down vote.
The debt ceiling was eventually increased to $16.394 trillion in 2011.
Debt crisis of 2013
After the debt ceiling was increased in 2011, the U.S. faced a similar crisis yet again in 2013. After Republicans and Democrats in Congress spent weeks of fighting over President Obama's Affordable Healthcare Act (aka "Obamacare"), the government shut down on Oct. 1 as Senator Ted Cruz and other Republicans demanded a repeal or delay of the law. The fight over healthcare turned into an argument over the debt ceiling, threatening a U.S. debt default.
The U.S. Senate finally reached a deal on Oct. 16 to avert a default and reopen the government after a two-week shutdown. The deal would extend U.S. borrowing authority until February 7, 2014.
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