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.
Keep exploring
- How much debt does the US have?
- What is the debt ceiling and why does it matter? - Despite a few close calls, the US has never defaulted on its debt.
- What is the US national debt and how has it grown over time? - The national debt is projected to grow to unprecedented levels if the federal government continues to operate at a deficit.
- How does the government budget process work? - Congress hasn't passed a full budget on time since 1997. How is the government getting funded?
