Kavan Choksi Business Consultant Sheds Light on the History of the Debt Ceiling of the United States

The debt ceiling of the United States basically is the legal limit on the total amount of federal debt the government can accrue. Kavan Choksi Business Consultant says that this limit applies to almost all federal debt. It includes the approximately $24.6 trillion of debt held by the public as well as the roughly $6.8 trillion the government owes itself as a result of borrowing from diverse government accounts, like the Social Security and Medicare trust funds. Consequently, the debt continues to increase because of the annual budget deficits financed by borrowing from the public and from surplus funds in trust funds. These funds are invested in Treasury bills, with the commitment to repay them later along with interest.

Kavan Choksi Business Consultant provides insight into the US debt ceiling

 Before the debt ceiling was established, Congress had to approve each and every issuance of debt in a separate piece of legislation. The debt ceiling was first enacted way back in the year of 1917 through the Second Liberty Bond Act and was set at $11.5 billion. This was done to simplify and improve borrowing flexibility. Congress created the first aggregate debt limit in 1939. This limit was set it at $45 billion and covered almost all government debt.

The debt ceiling has been modified more than 100 times by the Congress and the President since the end of World War II. The debt ceiling was increased from less than $1 trillion to almost $3 trillion during the 1980s. During the course of the 1990s, this limit was doubled to nearly $6 trillion. In the 2000s, the debt limit was again doubled to over $12 trillion.

The Budget Control Act of 2011 included provisions that raised the debt ceiling by $900 billion and authorized the President to increase it further by another $1.2 trillion, totaling $2.1 trillion, up to $16.39 trillion. Since the start of 2013, lawmakers have opted to suspend the debt limit rather than specify a dollar amount, doing so seven times. In 2021, the debt limit was increased two times. In December 2021, it was officially raised to $31.381 trillion.

As Kavan Choksi Business Consultant says, when the debt limit is reached, the Treasury Department of the United States depends on cash on hand and makes use of a variety of accounting maneuvers to avoid defaulting on the obligations of the government. These accounting measures are often referred to as extraordinary measures as well. As the government reaches the debt ceiling and makes use of all possible extraordinary measures, it is prohibited from issuing more debt and will soon deplete its cash reserves. In this situation, due to ongoing annual deficits, the incoming revenue would not be able to cover the numerous daily obligations as they become due. Consequently, the federal government would be compelled to temporarily default on various obligations. These obligations can include Social Security payments, salaries for federal employees and the military, veterans’ benefits, utility bills, and other essential expenses.