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US debt ceiling

18 August 2017

If a new debt ceiling is not agreed will the US government default?

The US debt ceiling is the limit on the issuance of US Treasury debt and, as such, constrains US borrowing and expenditure. Congress need to increase the debt ceiling by 29th September this year or the government may have to stop paying salaries to some government employees. The exact time at which the Treasury runs out of money is unclear. However the US Department of the Treasury says the following:

Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations – an unprecedented event in American history. That would precipitate another financial crisis and threaten the jobs and savings of everyday Americans – putting the United States right back in a deep economic hole, just as the country is recovering from the recent recession. [1]

Under Article 1, Section 8 of the US Constitution only Congress can authorise borrowing money on the credit of the United States so the President cannot overrule this limit. The debt ceiling was close to breach in 2011 and 2013 but in the end a new deal was agreed. On this occasion time is short and with Trump’s healthcare changes and tax reform on the agenda, agreeing a budget and an increase in the debt ceiling may be hard to establish. However, when it comes to US Treasury it may be unconstitutional to default under Amendment 14, Section 4 of the Constitution of the United States which states the following:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void. [2]

This means that under the US Constitution debt issuance can only be authorised by Congress but the payment of debt cannot be questioned. As a result, additional borrowing may be barred and the government may not be able to pay staff but the existing treasury debt should continue to be paid. If the administration falls back on this I suspect it could be challenged. If there is no agreement it is likely that parts of government such as national parks and museums would have to temporarily close. In any event, it is a priority for the Trump administration to agree a budget and revised debt ceiling as soon as possible.

 [1] Source: US Department of Treasury www.Treasury .com

[2] Source:


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