Marketplace has a new podcast for kids, "Million Bazillion!" EPISODE OUT NOW
Debt limit

The debt ceiling “dance” is coming up. How did it start?

Nancy Marshall-Genzer Jun 16, 2021
Heard on:
HTML EMBED:
COPY
Congress has until July 31 to raise or suspend the debt ceiling. Zach Gibson via Getty Images
Debt limit

The debt ceiling “dance” is coming up. How did it start?

Nancy Marshall-Genzer Jun 16, 2021
Heard on:
Congress has until July 31 to raise or suspend the debt ceiling. Zach Gibson via Getty Images
HTML EMBED:
COPY

Every couple of years, Congress and the White House do a little dance — a debt ceiling dance. Congress has to vote to raise or suspend the ceiling on the total amount of debt the government can run up. It always does, but only after a lot of high drama. The latest suspension runs through July 31. And once again, it’s a cliffhanger. 

The history of the debt limit starts with World War I, when the United States declared war on Germany in 1917. Then the government had to figure out how to pay for the war effort. So Congress passed legislation allowing the Treasury Department to borrow money by selling war bonds to investors and the American public.

The Treasury was free to sell the bonds, as long as the borrowing didn’t go over a certain amount, or a debt limit. Before this, the Treasury had to go running to Congress for approval every time it wanted to borrow money.

Shai Akabas, director of economic policy at the Bipartisan Policy Center, said it had to have been a pain the neck. He said that “the debt limit was effectively a way that Congress could set an overall limit and then let the Treasury Department issue debt as they needed.”

Akabas said it’s important to note that a higher debt limit does not mean funding more government programs.

“It is not new spending that we are incurring as a result of raising the debt limit. It is just paying the bills that are already due.”

But if those bills stack up or rise higher than the debt limit Congress set, lawmakers have to do one of two things: raise the limit or suspend it for a certain period of time.

According to Laura Blessing, a senior fellow at Georgetown University, “historically, this has normally been done with very little fanfare. These have not normally been battle royales in Congress and in our politics.”

But over the past three decades, the debt ceiling began sparking political battles over federal spending. Then came 2011 and, said Blessing, “a very empowered number of fiscal hardliners in the House Republican conference who say, ‘Look, we’re not voting for any tax raises, period. The end.’”

Blessing said that in 2011, Congress barely raised the debt ceiling in time to prevent the U.S. from defaulting on its debts.

So where are we with the debt limit now? Well, Congress suspended it for two years back in 2019 when it stood at almost $22 trillion. That suspension expires at the end of this July, so Congress doesn’t have much time to suspend the debt ceiling again or raise it.

This is a movie Lindsey Piegza has seen before. She’s the chief economist for Stifel Financial. “It comes down to more of a political show, as opposed to a legitimate tactic to rein in government spending,” she said.

Piegza said she expects more brinkmanship this time around, but Congress will again raise or suspend the debt limit. Because the alternative — to default — is unthinkable.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.