Why Is There a Debt Ceiling, Anyway?
21st January 2023
The debt ceiling was created during the World War I under the Second Liberty Bond Act of 1917. Prior to establishing the debt ceiling, Congress had to vote to approve each issuance of Treasury bonds, which can be a cumbersome process.
A debt ceiling allows the Treasury Department to issue bonds without having to go through Congress each time until the ceiling is reached. It thus makes the government’s fundraising process more efficient and encourages fiscal responsibility because, in theory, there is a limit on how much the Treasury can borrow.
In reality, however, the debt ceiling has been raised or suspended numerous times since its creation—from $11.5 billion in 1917 to $31.4 trillion as of 2021 (unadjusted for inflation). Over the past decade alone, the debt ceiling was raised or suspended eight times to avoid a government default, leading its critics to question its effectiveness and necessity.