Debt Limit Analysis

The debt limit, set by law, restricts the total amount of money that the federal government can legally borrow. When the debt limit is reached, the Treasury Department can no longer borrow money to cover government operations. It can temporarily draw on “extraordinary measures”—accounting maneuvers that can allow the government to continue standard operations for a limited period.

Once those extraordinary measures and the Treasury’s cash reserves run out, the federal government would reach the “X Date”—the day on which the U.S. government is unable to meet all its obligations in full and on time. This unprecedented event would likely have catastrophic consequences for financial markets and Americans throughout the country.

In August 2019, policymakers enacted a bipartisan budget deal that raised spending levels and suspended the debt limit for two years. On August 1, 2021, the debt limit was reinstated at approximately $28.4 trillion, a level covering all borrowing that occurred during the suspension. On October 14, 2021, President Biden signed legislation raising the debt limit by $480 billion to approximately $28.9 trillion. On December 16, 2021, President Biden signed legislation that raised the debt limit by $2.5 trillion, to approximately $31.4 trillion. This action likely ensures that the federal government will be able to meet its financial obligations through at least the end of 2022, resolving the most recent debt limit standoff.