The Debt Limit-
A Ceiling that Does Not Exist
The United States has accumulated more debt than any other time in history. And that debt is rising, even as this article is being written, by an average of $2.01 billion per day since September 29, 2006. See the DEBT CLOCK
What Fuels the National Debt?
In the United States, the Department of the Treasury is responsible for federal finances. It was first established in 1789 and its purpose was to manage the expenditures and revenues of the US government. The Treasury Department is divided into two divisions: departmental offices and operating bureaus. The departments are in charge of policy making and management of the treasury. The bureaus take care of specific operations. The Internal Revenue Service (IRS), which is in charge of collecting taxes and the Bureau of Engraving and Printing (BEP), which prints and mints all US money, account for about 98% of the work done by the Treasury. (1)
Each year the government creates budgets to determine how much money is needed to run the country. When the government spends more money than it collects in revenues from taxes, it runs a budget deficit. In order to finance the deficit, the government raises money by taking on a debt- essentially, borrowing money from the public. (1)
Up until about World War I, the US government needed permission from Congress every time it wanted to borrow money from the public. “With the Second Liberty Bond Act of 1917, however, the U.S. Treasury was given a debt limit, or a ceiling of how much it could borrow from the public without seeking Congress’s consent. The total amount of money that can be borrowed by the government without further authorization by Congress is known as the total public debt subject to limit. Any amount above this level has to receive additional approval from the legislative branch. The debt is sold in the form of securities to both domestic and foreign investors, as well as corporations and other governments. U.S. securities issued include Treasury-bills (T-bills), notes and bonds as well as U.S. savings bonds. There are both short-term and long-term investment options, but short-term T-bills are offered regularly, as well as quarterly notes and bonds. When the debt instrument has matured, the Treasury can either pay the cash owed (including interest) or issue new securities. Debt instruments issued by the U.S. government are considered to be the safest investments in the world because interest payments do not have to undergo yearly authorization by Congress. In fact, the money the Treasury uses to pay the interest is automatically made available by law. (1)
The current debt limit for the United States is $8.97 trillion. It was raised by $781 billion on March 16, 2006, to its current $8.97 trillion. In an article published in 2004, after yet another raise of the debt limit, Washington Post journalist Jonathan Weisman noted, “The government's borrowing limit has climbed by $2.23 trillion since President Bush took office: by $450 billion in 2002, by a record $984 billion in 2003 and by $800 billion this year. Just the increase in the debt ceiling over the past three years is nearly 2 1/2 times the entire federal debt accumulated between 1776 and 1980.” (2)
Why is it necessary to keep raising the debt limit? This is a reasonable question. In 2003 when the debt ceiling was breached, the Treasury paid the bills by shifting money from government retirement and other funds, moves that is said it could not make again. If the borrowing limit had not been extended, it would have led to the first-ever federal default- something that nobody wanted to be blamed for. So to avoid defaulting on its loans, the government must keep raising the debt limit. (3)
1. Heakal, Reem. "What Fuels the National Debt." Investopedia. 14 Jan. 2004. 18 Jan. 2007 <http://www.investopedia.com/articles/04/011404.asp>.
2. Weisman, Jonathan. "The US Debt Limit." Washington Post. 2004. 20 Feb. 2007 <http://www.washingtonpost.com/ac2/wpdyn/A609632004Nov18?language=printer>.
3. "Bush Quietly Raises the Debt Limit." CBS News. 27 May 2003. 18 Jan. 2007 <http://www.cbsnews.com/stories/2003/05/22/politics/main555108.shtml>.
The Debt Limit