Riding The Debt Ceiling Roller Coaster: Guidance For Investors Amid Uncertainty

The Gist of the Debt Ceiling Issue

Enacted during World War I, the “debt ceiling” is the cap on how much the US government can borrow to meet its legal obligations. Because the US government runs a deficit yearly, the debt ceiling must be raised periodically, or the government will default on its obligations – meaning it can’t pay things like interest on Treasury bonds, Social Security and Medicare payments, and paychecks to government employees and the military.

The debt ceiling is typically raised without much fanfare – it’s been raised 78 times since 1960: 49 times under Republican presidents and 29 times under Democratic presidents. But periodically, when Republicans control a chamber of Congress while there is a Democrat in the White House (as is the case now), Congress plays a game of chicken where it says it won’t raise the debt ceiling unless specific demands are met (typically spending cuts). This happened in 1995, 2011, and 2013.