October 07, 2021
Odds are you’ve heard news circulating that Capitol Hill is under pressure to make amendments to or raise the nation’s debt ceiling sometime this year, or risk a government shutdown. Members of congress have recently reached a temporary reconciliation to delay a ceiling raise to late November, but the problem still looms.
This is a common occurrence, actually. The debt ceiling has been raised or revised at least 78 times since 1960, and we think that it’s not likely to stop happening any time soon.
To those on the outside though, this can just seem like a vague proposition without having any understanding of what’s actually going on behind the scenes, and digging deep into the numbers. Today, we can clear up a bit of that confusion, and cast a quality overview of what the government is actually doing here.
The debt ceiling: a brief overview
The debt ceiling is exactly what it sounds like: a limit on the amount of money the treasury can add to its balance sheet. But it wasn’t always a problem. The debt ceiling was enacted in 1917 by way of the Second Liberty Bond Act during World War 1, with a starting amount capped at $1 billion dollars, which is the equivalent of over 21 times that much today.
Since then, the ceiling has been amended notably and continuously, essentially amounting to an annual affair at this point. The debt ceiling doesn’t have to exist, but since this legislation is here, the entire government operation is subject to it, and risks being shut down otherwise as they lose funding for important expenses.
So, who do we owe?
As of late September, the US is approximately $28.8 trillion dollars in the hole and counting. That sounds like a lot, and historically speaking, it is. Our debt to GDP ratio is about 125%, well above the nominally appointed 77% line that economists consider concerning.