2011 U.S. Debt Ceiling Crisis

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DEFINITION of '2011 U.S. Debt Ceiling Crisis'

A contentious July 2011 debate regarding the maximum amount of borrowing that the United States government should be allowed to undertake. A debt ceiling has been in place since 1917, but the government raises it whenever it comes close to hitting it. Hitting the debt ceiling would mean defaulting on interest payments to creditors. The consequences of such a default could include late, partial or missed payments to federal pensioners, Social Security and Medicare recipients, government employees and government contractors, as well as an increase in interest rate at which the U.S. could undertake further borrowing. The 2011 U.S. debt ceiling crisis was a heated negotiation over how to avoid potential problems like these.

INVESTOPEDIA EXPLAINS '2011 U.S. Debt Ceiling Crisis'

Congress resolved the debt ceiling crisis when it passed the Budget Control Act of 2011 and decided to immediately raise the debt ceiling by $400 billion, from $14.3 trillion to $14.7 trillion, with the option for additional increases in the coming months. The agreement included $900 billion in spending cuts over the next 10 years and established a special committee to identify additional spending cuts. In the aftermath of the crisis, Standard and Poor's downgraded the United States' credit rating from AAA to AA+ even though the U.S. did not default.

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