The History of the US Debt Ceiling
Debt Ceiling Drama: What It Really Means and Why It Matters
Stories about the debt ceiling have been dominating the headlines since August, when the suspension enacted in 2019 expired and the ceiling was reinstated at $28.5 trillion — the current amount of U.S. debt.
Janet Yellen, the U.S. Secretary of the Treasury, has been warning Congress that the government won't be able to pay its bills past October 18th unless the limit is raised or suspended again.
While Congress debates, President Biden signed a short-term bill last night to keep the government funded through December 3rd, temporarily avoiding a shutdown. But the debt ceiling issue still looms large.
What Is the Debt Ceiling?
The debt ceiling is exactly what it sounds like — a limit on the amount of money the federal government can borrow to pay existing obligations. These include:
Military salaries
Social programs
Interest on national debt
COVID relief funds
It’s important to note: raising the debt ceiling does not authorize new spending — it only allows the U.S. to pay bills it already owes.
Meanwhile, the Fed is also discussing tapering — reducing its asset purchases to slow down emergency spending. These two conversations are happening in parallel, but are distinct.
A Quick History of the Debt Ceiling
1917: Established during WWI via the Second Liberty Bond Act, to give the Treasury flexibility in issuing debt.
1939: A general limit on federal debt is enacted.
Since 1960: Congress has acted 78 times to raise, revise, or suspend the debt limit.
The U.S. has never officially defaulted — though close calls have triggered crises.
Crisis Flashpoints: 1995, 2011, 2013
1995: Debates over shrinking the federal government led to a shutdown.
2011: A standoff over spending cuts resulted in:
A credit rating downgrade by Standard & Poor’s
Increased borrowing costs: $1.3B in 2011, $18.9B over 10 years
2013: Congress refused to raise the ceiling unless the Affordable Care Act was defunded, triggering another shutdown.
2019: Debt ceiling was suspended for two years.
A few days ago, the House voted to suspend the ceiling through 2022, but the Senate blocked it. Republicans oppose it, viewing suspension as indirect support for President Biden’s American Rescue Plan.
What If We Don’t Raise the Ceiling?
Without a raised or suspended ceiling, the U.S. can't legally borrow to pay existing bills. That’s like a household with income and credit refusing to pay its mortgage — except with much larger consequences.
Potential outcomes:
Government shutdowns
Downgraded credit rating
Increased borrowing costs
Stock market volatility
Disruptions in government programs and services
Global bond market instability (Read more)
What If We Do Raise the Ceiling?
Historically, raising the ceiling was a routine formality. Now, it’s a political weapon.
Though it doesn’t allow for new spending, future spending plans do influence the debate. Democrats argue for suspension to handle existing obligations while they fund future initiatives — partly through proposed tax increases.
Why Keep the Ceiling at All?
It’s complicated. Other countries handle it differently:
Denmark: Has a ceiling so high it's rarely a political issue.
Poland: Limits debt based on a percentage of GDP.
Eliminating the U.S. debt ceiling or changing how it works would require Congressional agreement — something that seems unlikely in today’s political climate.
What We Focus On at NEST
At NEST, we don’t get distracted by political theater. Our data-driven approach and active in-house portfolio management are designed to insulate your investments from fear-driven decision-making.
Whether the ceiling gets raised, suspended, or endlessly debated — we stay focused on helping your portfolio perform.
📩 Email us at info@nestfinancial.net for a no-obligation consultation.
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DISCLAIMER: This article is for educational purposes only and is not investment or financial planning advice. For personalized recommendations, contact info@nestfinancial.net.