Is There a Limit to US National Debt?

In December 2021, the US federal debt ceiling was raised by $2.5 trillion to $31.381 trillion, a figure which is expected to last until at least July 2023.

Shortly after Republican Kevin McCarthy prevailed in the battle for the post of House Speaker, debates on whether the US should raise its national debt ceiling returned to the fore.

Let's take a closer look at the matter that has long been a bone of contention for US economists and lawmakers.

What is the US Debt Ceiling?

The debt ceiling is the total maximum amount of money that the United States government is authorized to borrow to meet its existing legal obligations. These include Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.

What May Happen if the Debt Limit is Hit?

Breaching the debt limit may lead to a first-ever default for the US government, which in turn is expected to throw the country’s economy into a tailspin.

Whenever the US approached the debt limit – something that has been in place 17 times since 2001 - Congress has voted to raise or suspend the debt ceiling.

In 2011, the threat of default led S&P Global Ratings (former Standard and Poor’s) to downgrade America’s credit rating for the first time, stripping the US economy of its prized AAA status.

What is the Current US Debt Ceiling?

The approximate amount of the current US debt ceiling, as set by the Congressional vote on December 15, 2021, and signed into law by President Joe Biden on December 16 of the same year, stands at $31.381 trillion. The figure represents a $2.5 trillion increase in the ceiling.

Congress voted in 2019 to suspend the debt limit for two years and take on more debt as the US was approaching the debt limit cap. That period ended on August 1, 2021, and the limit was reapplied.

How Many Times Was the US Debt Ceiling Increased?

According to the US Department of the Treasury, the debt limit has been raised, extended, or revised 78 separate times since 1960. This occurred 49 times under Republican presidents and 29 times when Democratic presidents were at the helm.

Debt Ceiling-Related Showdowns and Gov't Shutdowns

There have been a spate of showdowns over the debt limit, with some of them resulting in government shutdowns.

As a rule, the conflict is related to the White House and Congress, with the debt ceiling used as leverage to push budgetary agendas. In the US, government shutdowns take place whenever Congress fails to pass or POTUS refuses to sign or vetoes legislation funding the operation of some or all government agencies.

What is the ‘Battle’ Over Current Debt Ceiling?

Chip Roy, a Texas Republican and member of the Freedom Caucus, a right-wing bloc of GOP legislators within the US House of Representatives, said on Sunday that he would hail a hard-fought battle over the US debt ceiling, but urged both parties to start negotiating terms for the increase now so it doesn’t go down to the wire.

Last week, House GOP leader Kevin McCarthy clinched a deal with the lower chamber’s Freedom Caucus to get their votes in the marathon speaker election, in which McCarthy finally won.

Freedom Caucus members have repeatedly said that the House Speaker should insist on using the debt limit as leverage to enact major spending reforms, something that Senate Democrats have dismissed as a non-starter over the past decade.

The issue is expected to come to the fore after July 1, when the $31 trillion debt ceiling will need to be raised to prevent a government default on its debt payments.

Democratic Senate Majority Leader Charles Schumer floated the idea of raising the debt limit in last year’s lame-duck session while Democrats still controlled the House, but GOP Senate Minority Leader Mitch McConnell shot down the idea. Currently, Democrats warn that Congress could be headed for a fiscal disaster later this year.

“It’s very troubling,” Texas Democrat Lloyd Doggett told a US media outlet when asked about chances of a debt limit crisis. According to him, Congressmen “put at risk the economic future not only of our country but the world.”

President Joe Biden previously pledged that he won’t make concessions to keep Republicans from forcing a first-ever default on the national debt. White House Press Secretary Karine Jean-Pierre, for her part, told reporters on Sunday that “Congress is going to need to raise the debt limit without conditions and it’s just that simple.” She warned that “attempts to exploit the debt ceiling as leverage will not work. There will be no hostage-taking.”

Congress has successfully avoided a debt limit crisis since 2011, which was also the first year of a new House GOP majority. At the time, a row between the Republican-controlled House and the Democratic-run Senate and White House brought the government within days of defaulting on its debt obligations.

Now the question arises why America had never defaulted on its debt as of 2011. Simply put, the answer pertains to the US government owning the printing press to pay the money to its debt’s holders.

In this vein, US media in 2020 referred to former Federal Reserve Chair Alan Greenspan, who they reported “once said something similar: ‘The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default’.”

What Countries Own the Most US Debt?

According to US Bureau of the Fiscal Service’s 2022 statistics, the list of top-five foreign owners of US national debt includes Japan, China, the UK, Switzerland and Cayman Islands, according to the US Bureau of the Fiscal Service’s 2022 statistics.

With $1.3 trillion in Treasury securities, Japan remains the largest foreign holder of US debt. Second and third position are held by China with $980 billion and Britain with $634 billion.

Following them are Switzerland ($294 billion) and the Cayman Islands ($293 billion).