The Congress controls the money and federal debt limit for the country.
The federal debt limit is a much debated topic. The limit holds legislators accountable to borrow responsibly so the country can provide for its citizens and meet its financial obligations. However, with the frequency of the increases and with a debt of $12.96 trillion as of May 2010, there is a concern over being able to manage a debt this large in the future.
Rationale for a Federal Debt Limit
The federal debt limit is the congressional check and balance over the president's spending of federal money. The debt limit forces the executive branch and the president to be careful with the money they print and spend. While this debt limit can be a hindrance to the Treasury, it can be raised with congressional approval and the United States has never defaulted on an obligation because of it.
Early Federal Debt Limit History
Before the debt limit came into effect, the federal government would fund projects or expenses with specific legislation allowing the president and his administration to spend the funds. There were certificates of indebtedness, bills, notes and bonds that were passed by Congress, but they were all passed for a specific purpose or project. In 1917 the Second Liberty Bond Act gave the federal government permission to issue long-term debt without a specific purpose or project defined. In 1939, Congress completely cut the requirements for separate projects or programs and the first limit was set for general debts at $45 billion. This allowed the Treasury to shop in markets and issue government debt in faster moving financial markets without the need for congressional action.
Debt Limit Post-World War II
During World War II, the federal debt limit was increased often to accommodate the needs for the United States to fight and maintain a successful foreign military operation. After the war was over, the federal debt limit remained at $300 billion. It was dropped after World War II to $275 billion and stayed stable with limited increases and decreases. In 1962, the debt limit was the same as it was post-World War II at $300 billion. Since 1962, there have been 69 separate measures to alter the debt limit. Those alterations don't often set a dollar limit. Sometimes Congress will allow for a percentage of the annual budget to be set as the federal as opposed to setting an actual dollar amount that is allowed to be borrowed.
Debt Limit from 1998-2008
In the last decade, the federal debt limit has ballooned. In 1998, the federal debt limit was $5.95 trillion with $5.439 trillion being used. The federal debt limit was unchanged from 1996 until 2001, remaining at $5.95 trillion. Between 2002 and 2008, the federal debt limit grew to more than $10 trillion. This increase does not come as a surprise with a poor economy and war creating the need to spend more money.
Current Federal Debt Limit
In January of 2010, Congress debated legislation to raise the federal debt limit to $14.3 trillion through the end of the year, which was passed. As of May 2010, the federal debt is nearly $13 trillion. The federal debt is the money we owe our creditors, usually other countries, and does not mean that our budget is not balanced. Budgets from time to time are not balanced, but this does not affect the Federal debt unless money is borrowed to cover the budget imbalance. As of May 2010, there is no legislation being considered to raise the debt limit.
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