Chandan K. Jha and Sudipta Sarangi
While the debt ceiling crisis has been avoided for now, the merits of Treasury Secretary Janet Yellen’s argument that the debt ceiling should be removed still hold true. The debt limit or ceiling is the upper limit on the borrowing of the US government at any given time. The federal government uses its borrowings as well as tax revenues to fund its operations, including the salaries of federal employees, spending on federal programs such as Social Security and Medicare, payment of interest and principal on the federal government. existing debt, coverage of tax refunds, etc.
Historically, all U.S. Treasuries required legislative approval, which was especially tedious when millions of dollars were needed to fund WWI. debt limit set in 1939 by Congress. This created a new problem that still exists today: the debt ceiling, an arbitrary value devoid of any economic or financial meaning. So while Congress continues to approve new spending, the federal government typically runs out of money to fund its operations, and the debt ceiling has to be repeatedly raised.
One of the consequences of the debt ceiling is the shutdown of government, when many non-essential government services (such as national parks) are put on hold due to lack of resources resulting from the failure of Congress and the president to sign the budget legislation for the next financial year. For example, due to this political impasse, approximately 800,000 federal employees were put on leave or had their paychecks delayed during the longest government shutdown from December 22, 2018 to January 25, 2019.