Debt ceiling definition
The debt ceiling is the legal cap on how much the Department of the Treasury can borrow to pay for the government’s existing commitments.
The debt ceiling (or debt limit) is the legal maximum amount of money the US Treasury is allowed to borrow to meet the government’s existing financial obligations. These obligations include Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.
The debt ceiling does not authorize new spending; it allows the government to finance obligations Congress and the president have already approved.
What happens if the US hits the debt ceiling?
If the debt ceiling is reached and not raised or suspended, the Treasury cannot issue more debt. However, the Treasury can use “extraordinary measures” to keep paying the government’s bills for a short time until Congress raises or suspends the debt ceiling.
Extraordinary measures are special accounting and cash-management actions the US Treasury can legally take when the government reaches the debt ceiling. Extraordinary measures don’t create new borrowing authority. They temporarily free up room under the debt ceiling by, for example:
- Suspending new investments in certain government funds (like the Civil Service Retirement and Disability Fund)
- Redeeming existing investments earlier than usual
- Postponing reinvestments in government accounts.
