What Is the Debt Ceiling, and What Happens If Congress Doesn’t Raise It?

The very phrase “debt ceiling” sounds austere and restrictive, as if it’s a lid on government spending. In fact, the U.S. federal debt limit was first conceived more than a century ago to make it easier, not harder, for the government to borrow money. But it morphed into an explosive political tool with the potential to roil financial markets, since a failure to raise the debt ceiling could eventually result in a first-ever default on some of the government’s obligations.

Its creation, in 1917, was supposed to make it easier to finance World War I by grouping bonds into different categories, easing the burden on Congress to approve each bond separately. With World War II looming in 1939, Congress created the first aggregate debt limit and gave the Treasury Department wide latitude on what bonds to issue.