Federal Debt Limit
When this issue last loomed in 2011, we looked deeply at the question of whether the United States had ever defaulted before. (Answer: It is not entirely unprecedented. There are three instances when the United States could be seen to have defaulted on its obligations â€” in 1790, in 1933 and in 1971.)
The debt limit covers both publicly-held debt and debts the United States owes to itself (bonds to Social Security and Medicare for future obligations) so no matter what happens, the debt limit will have to be raised, one way or the other.
We learned much of this from an interesting 1954 history of the debt limit, published in the Journal of Finance, by H.J. Cooke and M. Katzen, which was posted on the Monkey Cage blog. The article notes that the debt limit generally was raised without controversy until a White House request to raise the limit in 1953 was sidetracked in the Senate, â€śwhere the ceiling was viewed as an instrument for forcing economy on the executive branch of the government.â€ť
Hmm, that sounds familiar.
But in that case, it was a Republican president, Dwight D. Eisenhower, who faced a roadblock from a Democratic senator, Harry F. Byrd of Virginia, who then chaired the Senate Finance Committee.
Eisenhower wanted to build the national highway system, which he considered an important investment in the future, but Byrd was concerned that national debt built up during World War II and the Great Depression was becoming a permanent feature of the U.S. government. Eisenhower asserted that he had â€śmoved promptly and vigorouslyâ€ť to cut spending but still needed the debt limit raised to pay outstanding bills.
But Byrd was not satisfied, and he demanded more cuts in exchange for a debt-limit increase. For a while, Byrd held the upper hand, forcing Treasury to take emergency measures to avoid default, but eventually Eisenhower got the debt ceiling raised in 1954, though not as much as he had hoped.
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"Why Did Congress Create A National Debt Limit?"