Debt limit episodes—which can be defined as starting when the statutory limit on federal debt restricts some of the U.S. Treasury’s normal debt operations and ending when new legislation to modify the limit is enacted—have been a recurrent federal fiscal feature in the past two decades. Since 2002, the debt limit has been modified 18 times. The Bipartisan Budget Act of 2019 (BBA 2019; P.L. 116-37), enacted in August 2019, had suspended the debt limit through July 31, 2021. The limit was reset at just over $28.4 trillion at the beginning of August 2021.
On September 8, 2021, Treasury Secretary Janet Yellen notified Congress that the debt limit “most likely” would become binding in October. Projections from other sources are similar.
Recent debt limit episodes share similarities, although the issue in 2021 has a few unique characteristics. First, the COVID-19 pandemic and the emergence of the Delta variant remain a source of economic uncertainty. In addition, fiscal responses spurred by the pandemic have accelerated the pace of federal debt accumulation. Second, the U.S. Treasury sharply increased its cash balances in 2020 to accommodate those fiscal responses. Third, since 2015, Bipartisan Budget Acts that adjusted statutory caps on discretionary spending imposed by the Budget Control Act of 2011 (BCA; P.L. 112-25) also suspended the debt limit. The expiration of those discretionary spending caps at the end of FY2021 rendered moot the need for legislation to modify them. Thus, the legislative vehicle used for the past few debt limit modifications is unavailable in 2021.
Federal Debt and the Debt Limit
When in force, the debt limit covers over 99% of federal debt. Federal debt grows when outlays exceed revenues and when the federal credit balance sheet expands. Federal debt outstanding since the debt limit was reset at the start of August 2021 has remained at $28.4 trillion. Most of that debt—$22.3 trillion—is held by the public, including $5.1 trillion in Federal Reserve holdings. Another $6.1 trillion is held as intragovernmental debt, mostly in various federal trust funds such as Social Security and federal retirement programs, which hold special Treasury securities that can be redeemed later to pay program expenses.
Public Debt / Debt Ceiling / Debt Limit (CongressionalGlossary.com)
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