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The Us Federal Government And The History Of National Debt Spending

2608 words - 11 pages

The United States debt limit, or debt ceiling, is the permissibly agreed amount of debt the U.S. Treasury can issue, either by borrowing from the public or issuing an intra-governmental receipt to special accounts, such as the Social Security or Medicare trust funds. A government shutdown usually occurs when Congress fails to enact an annual federal budget within the timeframe established by law or when appropriations authorization expires: unless there is a law saying that money may be spent on a project, money may not be spent on that project (Andrew 2013). Starting briefly from the history of the debt limit, the U.S. Congress preferred to issue debt for distinct purposes, such as issuing out bonds for the building of Panama Canal in the year 1904. The Congress also authorized the Treasury secretary to issue short-term debt and some longer-term debt with certain limits on maturities during the Spanish-American War of 1908 (Glen K. 2013). But World War I came in as a conflict with undetermined costs, making aimed legislation difficult. Foremost, the Congress established a $5 billion ceiling on new issues of bonds, along with the immediate issuance of $2 billion in one-year certificates of indebtedness, in the First Liberty Loan Act of 1917. The Second Liberty Bond Act of 1917 ushered in the statutory limit on federal debt, which helped finance the United States’ entry into World War I. With the passage of the Second Liberty Bond Act, Congress enacted aggregate constraints on certificates of indebtedness and on bonds that allowed the Treasury greater ability to respond to changing conditions and more flexibility in financial management (D. Andrew, 2008:2).
Separate limits for different categories of debt, such as bills, certificates, and bonds were enacted by debt ceiling legislatures. In 1939, Congress eliminated separate ceilings on bonds and on other types of debt, which created the first aggregate limit that covered nearly all public debt. This measure gave the Treasury unrestricted way to manage the federal debt as it saw fit. Also, the Treasury could choose to issue debt instruments with maturities that would reduce interest costs and minimize financial risks stemming from future interest rate changes given through the conditions in financial markets. The debt ceiling was also raised to accommodate accumulating costs for World War II in each year from 1941 through 1945, when it was set at $300 billion. After World War II ended, the debt limit was reduced to $275 billion. Because the Korean War was mostly financed by higher taxes rather than by increased debt, the limit remained at $275 billion until 1954. After 1954, the debt limit was reduced twice and increased seven times, until March 1962 when it again reached $300 billion, its level at the end of World War II. Since March 1962, Congress has enacted 69 separate measures that have altered the limit on federal debt.16 Most of these changes in the debt limit were measured in percentage...

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