History of the United States debt ceiling

The United States has raised its Debt Ceiling many times before the United States debt-ceiling crisis of 2011. These increases were not usually coupled with an ongoing global economic crisis. The Debt Ceiling and its management have been an important part of the macroeconomics of the US finance system for the past 200 years.

Overview

A statutorily imposed debt ceiling limit has been in effect since 1917 when the US Congress passed the Second Liberty Bond Act. Before that time, there was no legally binding debt ceiling, but there were procedural limitations on the level of possible debt that could be held by government.

The practice before 1917 was this

• The amount of each bond issue by the United States Treasury had to be separately authorized by Congress by passing a legislative act that approved the bond issue.
• The Congress limited the amount of debt the US government was authorized to use at any one time.

US government indebtedness has been the norm in the financial history of the nation

• The US has only been "without a debt or deficit" for under 1% of its legal existence since the 1778 Treaty of Paris.
• Debts incurred during the American Revolutionary War and under the Articles of Confederation led to the first yearly report on the amount of the debt ($75,463,476.52 on January 1, 1791).
• Every President since Harry Truman has added to the national debt expressed in absolute dollars. The debt ceiling has been raised 74 times since March 1962, including 18 times under Ronald Reagan, eight times under Bill Clinton, seven times under George W. Bush and three times (to August 2011) under Barack Obama.

The process of setting the debt ceiling is separate and distinct from the regular process of financing government operations, and raising the debt ceiling neither directly increases nor decreases the budget deficit. The U.S. government passes a federal budget every year. This budget details projected tax collections and outlays and, therefore, the amount of borrowing the government would have to do in that fiscal year. A vote to increase the debt ceiling is, therefore, usually seen as a formality, needed to continue spending that has already been approved previously by the Congress and the President. The Government Accountability Office explains, "the debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred." The apparent redundancy of the debt ceiling has led to suggestions that it should be abolished altogether.

State governments have different legal debt ceiling constraints that should never be confused with the Federal Government's debt ceiling

• Some US state governments in the late 20th century and early 21st century have modified their constitutions to impose hard debt ceilings separate from the federal government.
• Some US states more or less have constitutionally forbidden all borrowing by the state government. The US debt ceiling issue has evolved in the current era into a federal (but not state) issue.

19th century

At the beginning of the 19th century, the US was still financially unstable from its war of independence. The War of 1812 created conditions that required the US to borrow money into the 1820s.

The US Civil War (and its long term effects) forced the US to borrow large amounts from 1862 to 1880. During this time the US currency was more or less a Fiat currency.

20th century

Depending on who is doing the research, it is said that the US has raised its debt ceiling (in some form or other) at least 90 times in the 20th century.[1]

Before 1950

A statutorily imposed debt ceiling has been in effect since 1917 when the US Congress passed the Second Liberty Bond Act.

After 1950

The US Congress has raised the debt limit some 8 times in the decade 2001-2011. Since 1965, this frequency of Debt Ceiling increases is about on average.[2]

U.S. debt ceiling at the end of each year from 1981 to 2010. Indicates which President and which political party controlled Congress by year.

21st century

Yearly deficits since 2001 coupled with the persistent increases in debt held by government accounts has led to repeated increases of the Debt Limit in the 21st century.

External links

• History and Recent Increases (2010)
• History and Recent Increases (2008)
• Interview on US Debt Ceiling issues