The 2011 Debt Ceiling Crisis

By Dheeraj Veludandi. Edited by Arjun Chandrasekar.


The term “debt ceiling” depicts the maximum amount of money that the U.S can borrow, and it was created under the Second Liberty Bond Act of 1917. In case the national debt is above and against the ceiling, the Treasury Department turns to other measures in order to pay off the debt so the ceiling can be raised again. The 2011 Debt Ceiling Crisis — which took place in July of 2011 — was a political debate in the U.S Congress about the highest amount the federal government should be allowed to borrow. The federal government struggled to have a balanced budget and this is quite evident due to instances and events in the past such as the 2007-2008 Financial Crisis and the Great Recession. In 2008, the budget deficit was around $458.6 billion which went up to $1.4 trillion by 2009.

Debt Approval Process that Lead to the Crisis

The U.S Constitution states that the Congress has the power to borrow money and before the year 1917, this power allowed the Treasury to borrow specific amounts of debt in order to fund the military. Because of this, the national debt kept increasing due to constant approved spending. Since it was really flexible to simply raise the spending, Congress needed to raise the debt limit as well if spending is above the available money. Many politicians argued on this issue of continuously increasing the federal debt which was what the 2011 Debt Ceiling Crisis was all about. 

How did the Crisis begin?

The Republican Party had taken the House of Representatives the year before and they urged President Obama to reach an agreement on the deficit reduction in exchange for a debt ceiling increase. It was common in the past for the debt ceiling to be raised without having any conflicts or debates. Many politicians said that if the limit isn’t raised, it would lead to many cuts to spending which might have already been approved by congress. This would lead to late or even missed payments to Social Security recipients, government contractors, etc. Politicians have also insisted that the Treasury could suspend interest payments but only on debts right now instead of withholding funds connected to federal programs. People around the world believed that these politicians were insane since their ideas being proposed could potentially destroy the entire world’s economy. 

Aftermath of the U.S Debt Ceiling Crisis

To resolve the crisis, Congress passed the Budget Control Act of 2011 which officially became a law on August 2, 2011. Due to this act, the debt ceiling was raised by $2.4 trillion in a span of two phases. In the first phase, there would be a $400 billion debt ceiling increase which was supposed to be followed by a $500 billion increase but Congress didn’t approve of it. In the second phase, there was an increase from about $1.2 trillion – $1.5 trillion which wasn’t approved by Congress once again. So, the act had $900 billion in slowdowns and developed a committee to talk upon additional spending cuts. Then, the legislative branch raised the debt ceiling from $14.3 trillion to $16.4 trillion by January 27, 2012.

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