Management of the United States public debt is an important part of the macroeconomics of the United States economy and finance system, and the debt ceiling is a limitation on the federal government's ability to manage the economy and finance system.
A statutorily imposed debt ceiling has been in effect since 1917 when the US Congress passed the Second Liberty Bond Act.
Except for about a year during 1835–1836, the United States has continuously had a fluctuating public debt since the US Constitution legally went into effect on March 4, 1789.
[8] The U.S. Treasury nearly hit the debt ceiling in fall 1953, plus the Senate refused to raise it until summer 1954, but the federal government managed to avoid reaching it through using various measures, such as monetizing leftover gold.
[10] James Surowiecki argued that the debt ceiling lost its usefulness after these reforms to the budget process.
[15][16] In 2011, Republicans in Congress used the debt ceiling as leverage for deficit reduction because of the lack of Congressional normal order for fiscal year budget votes on the chamber floors and subsequent conference reconciliations between the House and the Senate for final budgets.
The credit downgrade and debt ceiling debacle contributed to the Dow Jones Industrial Average falling 2,000 points in late July and August.
The Bipartisan Policy Center extended the GAO's estimates and found that the delay raised borrowing costs by $18.9 billion over ten years.
The fiscal cliff was resolved with the passage of the American Taxpayer Relief Act of 2012 (ATRA), but no action was taken on the debt ceiling.
On May 19, the debt ceiling was formally raised to approximately $16.699 trillion to accommodate the borrowing done during the suspension period.
However, after the end of the suspension, the ceiling was raised only to the actual debt at that time, and Treasury needed to activate extraordinary measures to avoid a default.
With the impacts of the American Taxpayer Relief Act of 2012 tax increases on those who make $400,000 per year, the 2013 sequester, and a $60 billion payment from Fannie Mae and Freddie Mac that reached the Treasury on June 28, 2013, the extraordinary measures were predicted to last until October 17 by the Treasury,[23] but financial firms suggested funds might have lasted a little longer.
Jefferies Group said extraordinary measures might have lasted until the end of October while Credit Suisse estimated mid-November.