It’s that time again when the US government has to prepare itself for an internal battle to raise the debt ceiling so it can meet various obligations. This is a merry dance that has been danced before, as we mention below.
For sure, every time it happens fewer and fewer people are convinced of the trustworthiness of the US dollar. This combined with the recent announcement by Saudi Arabia of its willingness to consider trading in currencies other than the US Dollar and the Euro suggests that the era of US Dollar hegemony may be in its final act.
Every few years the U.S. government enters a debate over raising the National Debt Ceiling. This debate has dragged on for months in the recent past and will give the Fed a reprieve from being the center of the news for the next few months.
The Debt Ceiling
The debt ceiling was created in 1917 under the Second Liberty Bond Act also known as the debt limit or statutory debt limit.
The debt ceiling is set by Congress and is the maximum amount that the U.S. Treasury Department can borrow by issuing bonds and when the ceiling is reached the U.S. Treasury Department must find alternative ways to pay expenses. The debt ceiling applies to most federal government debt (i.e. government bonds and Treasury bills).
It includes both debts held by the public and what the U.S. government owes as a result of “borrowing” from various accounts such as what it has “borrowed” from the Social Security and the Medicare trust funds.
The debt ceiling has been raised 78 times since 1960, the most recent time was in December 2021 to $31.4 trillion.
The debt ceiling went from just under $1 trillion to nearly $3 trillion in the 1980s and has roughly doubled every decade since – the 1990s saw it at $6 trillion, then by the end of the 2000s it stood at roughly $12 trillion, etc.
When Congress raises the debt ceiling it has a good estimate of when the ceiling will be reached so it is not a surprise that it has been reached this month.
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