Article I Section 8 of the United States Constitution gives the Congress the sole power to borrow money on the credit of the United States. From the founding of the United States through 1917 Congress authorized each individual debt issuance separately. In order to provide more flexibility to finance the United States' involvement in World War I, Congress modified the method by which it authorizes debt in the Second Liberty Bond Act of 1917, Under this act Congress established an aggregate limit, or "ceiling", on the total amount of bonds that could be issued.
The modern debt limit, in which an aggregate limit was applied to nearly all federal debt, was established in 1939. The Treasury has been authorized by Congress to issue such debt as was needed to fund government operations as long as the total debt (excepting some small special classes) does not exceed a stated ceiling.
The most recent increase in the U.S. debt ceiling to $14.294 trillion by H.J.Res. 45 was signed into law on February 12, 2010.
As of July 2011, the United States is effectively at the limit of Congressionally authorized debt. Congress is now considering whether and by how much to extend the debt ceiling. An issue of note is that failure to extend the limit may leave the federal government unable to pay all its obligations, including paying interest on existing debt, a default that could have serious repercussions.
In a May 16, 2011 letter to Congress, U.S. Treasury Secretary Timothy Geithner declared a “debt issuance suspension period,” which provides the Secretary authority to sell assets from the Civil Service Retirement and Disability Fund. Geithner had previously sent letters to Congress requesting an increase in the debt ceiling on January 6, April 4, and May 2, 2011.
When the debt ceiling is reached, the U.S. Treasury has methods to acquire funds other than issuing new debt to meet federal obligations. Several of these methods are described in detail in an Appendix attached to Secretary Geithner's April 4, 2011 letter to Congress: These "extraordinary measures" include using federal employee payroll deductions directed to the G-Fund, which is part of a 401(k)-like program known as the Thrift Savings Program (TSP), and to the Civil Service Retirement and Disability trust fund. These methods have been used in several previous episodes in which federal debt neared its statutory limit.
Section 4 of the Fourteenth Amendment to the United States Constitution, passed in the context of the Civil War Reconstruction, prohibits questioning the validity of all lawfully authorized United States public debt. Bruce Bartlett, blogger and columnist for The Fiscal Times, argues that Section 4 renders the debt ceiling unconstitutional, and that the President should disregard the debt limit. In July 2011, The Nation editor Katrina vanden Heuvel argued that the President could use the public debt section of the Fourteenth Amendment to force the Treasury to continue paying its debts if an agreement to raise the debt ceiling is not reached.
Laurence Tribe, professor of Constitutional Law at Harvard Law School, has called the argument that the public debt clause can nullify the debt ceiling "false hope" and has noted that nothing in the Constitution enabled the president to "usurp legislative power" with regards to the debt. Tribe also notes that since Congress has means other than borrowing to pay the federal debt (including raising taxes, coining money, and selling federal assets) that the argument that the president could seize the power to borrow could be extended to give the President the ability to seize those powers as well.
George Madison, General Counsel to the US Treasury, wrote on 8 July 2011 that "Secretary Geithner has never argued that the 14th Amendment to the U.S. Constitution allows the President to disregard the statutory debt limit" and that "the Constitution explicitly places the borrowing authority with Congress". He additionally affirmed that "Secretary Geithner has always viewed the debt limit as a binding legal constraint that can only be raised by Congress."
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