The US Debt Ceiling

Written by: Jeff Campos, Wealth Manager

The debt ceiling has been around since World War 1, it was established to keep our federal government’s spending in check so that our nation doesn’t run out of money.  The debt ceiling has been raised multiple times over the years, which allows the treasury department to borrow the amount of money it needs to pay the bills approved by Congress up to a certain dollar amount. This has been used to avoid negative impacts such as defaulting on U.S. debt obligations and government shutdowns. The debt ceiling has also been raised to ensure funding for Social Security and Medicare.

Congress can also suspend the debt ceiling to keep the nation’s economy running. Suspending the debt ceiling allows the treasury department to borrow the amount of money it needs to pay the bills Congress approved until a certain date. The most recent debt ceiling suspension was passed in June 2023 and expired as scheduled on January 1, 2025.

It is important to note while raising or suspending the debt ceiling helps pay current and previous obligations, it does not authorize the government any new spending.

So what does this mean for 2025?

With the debt ceiling being reinstated in 2025, it is likely that the U.S. will hit the debt ceiling early in the year. One strategy the treasury department can use if this happens to keep the US government afloat is called “extraordinary measures”, which essentially allows the treasury department to keep paying the bills for a few months after the debt ceiling has been hit. During this time, the government will be required to explore strategies such as budget cuts to lower our nation’s debt. The government can also choose to raise or suspend the debt ceiling before the “extraordinary measures” time runs out. It is likely that a deal will be made before that time is up due to the negative impact it would have on our nation if we defaulted on our debts.

This is one of the many things we monitor at our firm. It is important that we monitor the debt ceiling, so we understand where our country’s economy and debt obligations stand.

Should this information bring up any questions or concerns for you regarding your current plan or situation, please reach out to us.

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