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The Debt Ceiling: A Recent History

The most recent increase to the debt limit was both the largest increase ever and the first time that a debt limit increase exceeded $1 trillion. Due to the size of this most recent increase, it is expected that the federal government will not need to raise the debt ceiling again until sometime in 2011.

Congress has raised the debt ceiling six times in the last three years to keep pace with our deteriorating financial situation. It is currently pegged at $14.3 trillion, but to put this in perspective, a little over three years ago the debt limit was less than $9 trillion.

During the fall of 2009, the national debt steadily approached the debt limit of $12.1 trillion dollars, set on February 17, 2009. On November 16, 2009, the national debt passed $12 trillion for the first time in history. Finally, on December 24, 2009, Christmas Eve, the U.S. Senate approved a $290 billion dollar increase to the debt ceiling.

Originally, the debt ceiling increase late in 2009 was supposed to be of a similar size to more recent increases (closer to $800 or $900 billion), but public outcry and political opposition forced Congress to increase the ceiling by a much smaller margin. The smaller increase bought Congress a few months cushion to consider attaching a debt commission or pay-go rules to the next debt ceiling increase.

This set the stage for a heated debate in the next month over how to slow the rapid increase of the national debt, including serious discussion of a proposed “debt commission.” The increase on January 28th was much larger than the $290 billion raise on Christmas Eve, enough to postpone the next debt ceiling hike until after the 2010 elections.

The Debt Ceiling: A History

It took the United States 200 years to accumulate the first $1 trillion of debt. The most recent trillion took us less than a year, and we are on track for another $5 trillion in the next five years.

Raising the debt limit was not always so common. For example, after the debt ceiling was established during World War II, Congress often labeled debt ceiling hikes as “temporary” legislation, suggesting that once the budget crisis had passed, the debt would drop back to a lower limit. But that rarely occurred, and few pretend that the raising the debt ceiling is “temporary” anymore.

The Bottom Line

The debt ceiling was originally designed to create downward pressure on the national debt. The debt ceiling also gave lenders confidence that the US government was a reliable borrower. Creating a limit to how much the government could borrow was supposed to be an incentive for the government to slow down government borrowing and think seriously before creating new debt. In recent years, the debt ceiling has not been treated this way, and new debt is created by the billions every month.