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Debt Ceiling Crisis Update

The federal debt limit, also known as the debt ceiling, is the amount of money Congress has authorized for the U.S. government to borrow in order to meet existing obligations, which includes interest on national debt and tax refunds.1 In 1917, the year the U.S. entered World War I, Congress created the first debt-ceiling limit to offer borrowing flexibility while preventing the amount the government could borrow without direct approval from becoming out of control.2

On October 1st, Treasury Secretary Jacob Lew sent an ominous warning to Congress concerning the U.S. debt limit: even though the U.S. has temporarily been able to avoid a government shutdown, the government is still on course to default on obligations if Congress does not take further actions.3

The Treasury has been taking emergency action since March to avoid breaching the government’s debt limit.4 After the near-crisis in March, observers thought lawmakers would need to address the issue by the summer; however, Congress gained more time because of an increase in federal tax revenue.5 Now that summer has ended, Secretary Lew predicts that the Treasury will consume all available resources around November 5, 2015 give or take a few days6 Following the exhaustion of resources, the government would only have cash on hand to finance activities—an amount equal to less than $30 billion.7 At times, however, net expenditures reach up to $60 billion, so the government would not nearly have enough money to cover costs.8

If Congress does not find a solution to the impending problem, then for the first time, the U.S. will be unable to meet all of its obligations.9 The Treasury cannot write checks to pay the government’s bills without Congressional approval. U.S. creditors include not only foreign entities and governments but also domestic public and private entities.10 Not only would the U.S. be unable to pay out benefits like Social Security but lenders may also hesitate to let the U.S. borrow money from them going forward.11 Additionally, as Secretary Lew has pointed out, not raising the debt ceiling in a timely manner can also negatively impact financial markets, businesses, consumer confidence, and the U.S.’ credit rating.12

  1. Kelly Phillips Erb, Treasury Secretary Lew Warns Again On Debt Ceiling: What You Need To Know, Forbes (Sep. 14, 2015, 11:57 AM), 

  2. Id. 

  3. Kelly Phillips Erb, Treasury Sends Dire Warning To Congress: We’re Running Out Of Money Faster Than Expected, Forbes (Oct. 1, 2015, 6:02 PM), 

  4. Jonah Shepp, Debt-Ceiling Derby Coming Back to D.C. Next Month, New York Magazine (Oct. 2, 2015, 1:04 AM), 

  5. CNN Money, The next debt ceiling crackup (Feb. 24, 2015, 4:18 PM), 

  6. Supra note 3. 

  7. Id. 

  8. Id. 

  9. Supra note 3. 

  10. Supra note 1. 

  11. Supra note 1. 

  12. Supra note 1. 

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Melanie Rosin

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