A debt ceiling is a limit on the amount of debt an organization can carry, commonly associated with the US federal government. It aims to prevent excessive borrowing, but can be raised at any time through the actions of the legislative and executive branches. The debt ceiling was first instituted during World War I to limit the total amount of money the government could borrow by issuing bonds. Today, it limits the total level of debt accumulated by public spending, and Congress must pass a budget resolution that reduces spending or generates more revenue to avoid reaching the limit. To raise the debt ceiling, both the Senate and the House of Representatives must draft resolutions raising it, specifying what the limit will be after approval.
A debt ceiling is a limitation on the debt an organization can carry and is most commonly associated with the budget process of the United States federal government. However, it may be a limit that applies to the finances of any group. The cap prevents the legislature, which consists of the Senate and the House of Representatives, from borrowing any funds once the debt level indicated in the budget reaches the cap. The goal of the debt ceiling is to prevent a government from borrowing too much money and risking insolvency. However, it is an arbitrary figure, and can be raised at any time through the combined actions of the legislative and executive branches of the federal government.
The United States first instituted a debt ceiling during World War I, when Congress authorized the Treasury to issue Liberty Bonds to finance the war effort. The Treasury would issue the bonds and then pay the bondholders with interest on a specified date. To prevent the accumulation of insurmountable debt, Congress limited the total amount of money that the federal government could borrow by issuing the bonds. That limit became the formal debt ceiling that the federal government uses to limit overall debt.
In 2011, the debt ceiling is no longer limited to the issuance of government bonds, but instead limits the total level of debt accumulated by public spending. This total does not reset at the end of the year, but is an ongoing arbitrary limit. When the federal government’s national debt approaches the debt limit, Congress must pass a budget resolution that reduces spending below total revenue that will eliminate the deficit, or it must pass an initiative that generates more revenue. Congress can also pass a bill that increases the debt limit, although this option is often politically volatile.
To raise the debt ceiling, both the Senate and the House of Representatives must draft resolutions raising it, specifying what the limit will be after approval. Drafts must go through the committee process of each house of Congress by majority vote. Each bill must pass a full vote on the floor of each chamber. If the bill passes, the House and Senate versions must be reconciled in a joint committee of both chambers. The President of the United States must approve or veto the increase in the debt limit. However, if the bill is vetoed, Congress can override the veto and pass the increase if two-thirds of each house votes for it.
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