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What is the debt ceiling

The debt ceiling, also known as the debt limit, is a legislative limit set by the government on the amount of debt that can be issued by the Treasury Department. It represents the maximum amount of money the government is allowed to borrow to meet its financial obligations, including paying for government programs, services, and interest on existing debt.

In the United States, for example, the debt ceiling is determined by Congress through legislation. When the government needs to borrow money beyond the existing debt limit, it must seek approval from Congress to raise the debt ceiling. If Congress does not raise the debt ceiling and the government reaches the limit, it may lead to a situation known as a “debt ceiling crisis” or “debt ceiling standoff.”

During such a crisis, the government may face difficulties in meeting its financial obligations, potentially leading to a government shutdown, delayed payments to government contractors and employees, and potentially even defaulting on its debt payments. To avoid these negative consequences, Congress typically takes steps to raise the debt ceiling, allowing the government to continue borrowing and functioning normally.

It’s important to note that the debt ceiling does not determine the level of spending or taxation. It simply places a limit on the amount of borrowing the government can undertake to finance its activities.