What is the debt ceiling?

WASHINGTON — The debt ceiling is a legal limit on the total amount of money the U.S. Treasury can borrow. Congress sets the limit. When the national debt, currently $40.25 trillion, reaches it, the Treasury cannot issue new debt until Congress raises or suspends the ceiling.

What it is not

The debt ceiling does not authorize new spending. Every dollar of borrowing under the ceiling pays for spending Congress already approved in prior budgets. Think of it this way: Congress orders the meal, then separately votes on whether to pay the credit card bill.

What happens when it is hit

The Treasury uses “extraordinary measures,” accounting maneuvers that free up room under the ceiling, to keep paying the government's bills. These typically buy several months. If the ceiling is not raised before those run out, the Treasury cannot borrow, and the government could default on its obligations, including interest payments to bondholders, Social Security checks, and military pay.

A brief history

Congress created the debt ceiling in 1917 to simplify war borrowing. It has been raised, extended, or suspended more than 100 times since. In recent decades it has become a recurring point of negotiation, with standoffs in 2011, 2013, and 2023 each resolved before default.

Why economists watch it

U.S. Treasury securities are the foundation of the global financial system. A default, even a brief technical one, could raise borrowing costs for the government, businesses, and consumers worldwide. That is why the ceiling draws attention far beyond Washington.