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Debt ceiling 101: 12 questions about what's going on

The US Treasury has warned that as early as Oct. 17 it will no longer be able to cover all the government's rising financial obligations. Here’s your guide to the debt limit deadline and its implications.

4. Is the US required to have a debt ceiling?

Laurent Dubrule/Reuters/File
You are not alone, Mr. Obama. Danish Prime Minister Helle Thorning Schmidt also has a debt ceiling to think about.

No. The Constitution allows Congress to arrange to borrow money, and doesn’t require any limit on borrowing.

But “Congress has always placed restrictions on federal debt,” notes a report this year by the Congressional Research Service. Even before there was a cap on aggregate borrowing, legislators set limits on how much borrowing that could occur, and for what purposes. Behind that stance is a lesson of history: Too much debt can be a dangerous thing, whether it’s for a person, a business, or a nation.

Mostly, other nations do not have debt ceilings, but that doesn’t mean they have no policies related to debt. In 2011, a Government Accountability Office report offered up only one nation, Denmark, that sets an official cap on borrowing the way the US does. But nations find other ways to keep watch on debt.

The report said “other countries that we reviewed generally use fiscal rules or targets to increase attention to … fiscal policy decisions that lead to an increase in debt.” Members of the European Union, it noted, agree to the following targets: total debt no greater than 60 percent of one year’s GDP, and annual deficits no greater than 3 percent of GDP.

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Mark Sappenfield
Editor

Dear Reader,

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