This is what you need to know about the ‘Debt Ceiling’.

The debt ceiling, also known as the debt limit, is a legal cap on the amount of money that the United States government can borrow.
It first emerged in the United States in 1917, as part of the Second Liberty Bond Act, which helped fund America’s entry into World War I. Since then, the debt ceiling has undergone numerous changes and controversies.
Initially, the debt ceiling was designed to empower Congress to control government spending by limiting the amount of money the government could borrow.
This was intended to prevent excessive borrowing by the government, which could lead to inflation and a destabilized economy. At this time, the debt ceiling was seen as an instrument of fiscal responsibility, a tool to help the government balance its budget and avoid overspending.
However, over time, the debt ceiling came to be used more as a political weapon than a fiscal one. In the 1990s, the debt ceiling became a bargaining chip in congressional budget battles, as lawmakers threatened to refuse to raise it if their political demands were not met. As a result, the debt ceiling became more and more politicized, with each party using it as a tool to advance their agenda.
One of the most significant moments in the history of the debt ceiling occurred in 2011, when the United States came perilously close to a default on its debts.
At that time, Republicans in the House of Representatives, emboldened by their sweeping victory in the 2010 midterm elections, refused to raise the debt ceiling unless their demands for spending cuts were met. This standoff nearly caused a catastrophic default, and it sparked a crisis of confidence in the US economy that reverberated throughout the world.
In response to this crisis, President Obama and Congress took action to reform the debt ceiling. In 2011, they passed the Budget Control Act, which included provisions to raise the debt ceiling and implement automatic spending cuts if Congress failed to reach a budget agreement.
The Budget Control Act is a federal law that was passed by the United States Congress and signed into law by President Barack Obama in August 2011. The law was designed as a response to the debt ceiling crisis that had threatened to cause a default on the federal government’s obligations, by establishing a process for reducing the federal deficit over the next decade.
The Budget Control Act imposed automatic spending cuts to both defense and non-defense discretionary spending, known as sequestration, if Congress failed to agree on a budget that reduced the deficit by a specified amount. The law required Congress to agree on a $1.5 trillion reduction in the budget deficit over the next ten years through spending cuts, revenue increases or a combination of both.
The law also established a Joint Select Committee on Deficit Reduction, tasked with finding additional ways to reduce the deficit. The committee was made up of members of both the House of Representatives and the Senate, and was given the goal of reducing the deficit by $1.2 trillion over ten years.
If the Joint Committee could not find sufficient reductions in the budget deficit, then the automatic spending cuts, or sequester, would come into effect. These cuts were split equally between defense and non-defense discretionary spending, and were intended to be a painful incentive for Congress to reach a budget agreement that satisfied the spending reduction requirements.
The Budget Control Act has had a significant impact on federal spending and the budget over the last decade. The sequester measures have resulted in significant cuts to both defense and non-defense spending and have made it difficult for Congress to pass and fund new programs or initiatives. Despite this, the Act has been credited with reducing the deficit and balancing the federal budget to some extent.
This was designed to prevent future crises and ensure that the government could continue to operate without risking a default on its debts.
Despite this reform, the debt ceiling remains a contentious and divisive issue in American politics. In recent years, Republicans have continued to use it as a bargaining chip, and some have even called for its abolition altogether. However, many experts agree that the debt ceiling is a valuable tool for promoting fiscal responsibility and preventing the government from overspending.
The history of the debt ceiling in America illustrates the complex and often fraught relationship between politics and economics. While it was originally designed as a tool of fiscal responsibility, it has become a political football, with both parties using it to advance their agendas and achieve their goals. Nevertheless, it remains an important part of our political and economic system, and it will likely continue to play a significant role in shaping the economy and political landscape of the United States.
Craig Bushon

Craig Bushon

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