Congress and President Joe Biden are at loggerheads over the debt ceiling, which, if not extended, could lead to the first US debt default in US history. This can mean withholding or paying part of the federal government’s obligations, including Social Security and Medicare. Following is a brief explanation of what credit limit is and why it is important.
What is the loan limit?
The debt ceiling, by law, sets the maximum amount of money the government can borrow to cover expenses that Congress has already authorized. It does not set any limit on future expenses. The United States officially exceeded the debt limit—$31.381 trillion—on January 19. Since then, the Treasury Department has been implementing “extraordinary measures” to pay down current debts. Treasury Secretary Janet Yellen estimates that the United States will not be able to pay off all of its debt by June 1.
Debt default is not the same as a government shutdown, which occurs when Congress fails to agree on a budget before the end of the fiscal year (or fiscal year extension). In the event of a default, federal agencies will remain open, but employees may have to wait to receive their pay and the government may not have enough money to pay for obligations that Congress has already approved. and agreed to spend.
Why is there a debt limit?
Before there was a debt cap, Congress had to pass a separate law every time the government took on debt. The Debt Limit Bill, which was passed in 1917, was part of the Second Liberty Bond Act, and was intended to simplify the process of borrowing money. The debt ceiling was expanded in 1939 to include most government spending, and was set at $45 billion, about 10% of the country’s total debt at the time. Today, the debt ceiling affects nearly all of America’s legal obligations, including Social Security and Medicare benefits, military pay, interest on Treasury bonds, and other payments.