Debt Ceiling

Loading the player...

What is a 'Debt Ceiling'

The maximum amount of monies the United States can borrow. The debt ceiling was created under the Second Liberty Bond Act of 1917, putting a "ceiling" on the amount of bonds the United States can issue. As of the end of July, 2011 the debt ceiling was set at $14.3 trillion.


Also known as the "debt limit" or "statutory debt limit."

BREAKING DOWN 'Debt Ceiling'

Before the debt ceiling was created, the President had free reign on the country's finances. In 1917, the debt ceiling was created during World War I to hold the President fiscally responsible. Over time, the debt ceiling has been raised whenever the United States comes close to hitting the limit. By hitting the limit and missing an interest payment to bondholders, the United States would be in default, lowering its credit rating and increasing the cost of its debt.


There has been controversy over whether the debt ceiling is constitutional. According to the 14th Amendment of the Constitution, "The validity of the public debt of the United States, authorized by law ... shall not be questioned." The majority of democratic countries do not have a debt ceiling, with the United States being one of the exceptions.

RELATED TERMS
  1. 2011 U.S. Debt Ceiling Crisis

    A contentious July 2011 debate regarding the maximum amount of ...
  2. Price Ceiling

    The maximum price a seller is allowed to charge for a product ...
  3. Ceiling

    The maximum level permissible in a financial transaction. Ceiling ...
  4. Statutory Debt Limit

    A debt limit established under the Second Liberty Bond Act of ...
  5. Interest Rate Collar

    An investment strategy that uses derivatives to hedge an investor's ...
  6. Budget Control Act - BCA

    A federal statue passed by Congress and signed into law by President ...
Related Articles
  1. Markets

    What's a Price Ceiling?

    A price ceiling is the maximum amount a seller can charge for a product or service.
  2. Markets

    A Look At National Debt And Government Bonds

    Learn the functions of the U.S. Treasury, and find out how and why it issues debt.
  3. Markets

    How Debt Limits A Country's Options

    While debt is fundamentally necessary to the operation of a national government, it can also be limiting and dangerous.
  4. Markets

    How Countries Deal With Debt

    For many emerging economies, issuing sovereign debt is the only way to raise funds, but things can go sour quickly.
  5. Financial Advisor

    The 4 Best Debt Reduction Services

    It can be tricky to find the best debt reduction services for your financial situation. These top 4 debt consolidation firms help make the process easier.
  6. Retirement

    Why Retirees Are Carrying More Debt Than Ever

    It was recently discovered that as people reach retirement they are carrying more debt than ever before.
  7. Markets

    Does 2016 Spell the End of a Global Debt Cycle?

    Examine the growth of global debt from 2010 to 2015. Emerging market debt has grown significantly, while advanced economy debt has grown marginally.
  8. Investing

    Explaining Debt Service

    Debt service is a measure of a person or entity’s use of cash to pay interest and principal on debt obligations.
  9. Markets

    What's a Debt Security?

    A debt security is a financial instrument issued by a company (usually a publicly traded corporation) and sold to an investor.
  10. Personal Finance

    Best 5 Money-Saving Tips to Get out of Debt

    Understand the different types of debt and the reasons why people get into debt. Learn about five tips to follow to get out of debt.
RELATED FAQS
  1. What is a good debt ratio, and what is a bad debt ratio?

  2. What's the difference between debt consolidation and debt management or debt settlement?

    Learn about different ways of handling debt when you become overwhelmed, including debt consolidation, debt management and ... Read Answer >>
  3. Why would you look at a company's net debt rather than its gross debt?

    Learn the difference between net debt and gross debt, how to calculate debt using a company's financial statements and why ... Read Answer >>
  4. When should a business avoid debt financing?

    Read about the optimal use of debt in a business capital structure and how to know when a business should avoid further debt ... Read Answer >>
  5. Why is debt issued in both temporary and permanent forms?

    Debt is separated into two categories: 1) Temporary or short-term 2) Permanent or long-term. Temporary or short-term debt ... Read Answer >>
  6. How long do typical debt management plans take to pay off debt?

    Find out more about how debt management plans are administered and what circumstances determine how long a management plan ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center