Congress has once again run up against a deadline to boost the federal debt limit, a legal restriction on how much the U.S. government can owe to creditors. A failure to raise the limit to accommodate for current expenditures could result in the U.S. government going into default.
Here are five facts on the federal debt limit:
- In 1917, the year the first formal debt limit was enacted, the federal debt was $5.7 billion, or $121.8 billion in today’s dollars.
The federal debt today is roughly $28.4 trillion, or more than 233 times its real-dollar total in 1917. Aside from the U.S., only a few other nations, including Denmark, Kenya, Malaysia, and Namibia, have federal debt limits.
- Extending the debt limit does not authorize new spending.
Though legislators often use the debt limit debate to argue against profligate spending, raising the debt limit allows the government to pay for spending it has already approved. It does not increase spending.
- The debt limit has been raised 78 times since 1960.
These increases came 49 times under Republican presidents and 29 times under Democratic presidents. The most recent debt limit votes have been bipartisan, never receiving fewer than 240 votes in the House and 67 votes in the Senate.
- Moody’s Analytics warns that a debt default would wipe out $15 trillion in household wealth.
U.S. Treasury bonds are considered the most-low risk asset in the world, in part because the U.S. has never defaulted on its debt obligations. If America’s ability or willingness to repay its debts were called into question, it would have ripple effects globally including potentially raising the cost of borrowing for mortgages, car loans and other consumer credit products, all of which are pegged to the interest rate on U.S. Treasury debt. In the wake of a debt default, the Moody’s analysis said that “nearly 6 million jobs would be lost, and the unemployment rate would surge back to close to 9%.” Moody’s Chief Economist Mark Zandi said the result would be “cataclysmic.”
- The 2011 debt limit crisis led to the first-ever reduction in the federal government’s credit rating.
In April 2011, Standard and Poor’s warned that a reduction of the U.S. government’s AAA sovereign-debt rating could occur if the pending debt limit crisis was not resolved, and a plan for tackling the overall debt enacted. The actual downgrade to AA+ came several days after the debt limit was raised by Congress, with S&P citing “political brinksmanship” and instability that had only just eked out an agreement. The Dow fell 5.6% and the S&P 500 fell 6.7% the day of the downgrade.