What Happens When the US Hits Its Money Limit?

Nathan Brawner
Jul 6
3 min read

Updated: Jul 18

Imagine your parents give you a weekly allowance of $20. You budget carefully, setting aside $10 for food, $5 for your favorite video game, and putting the last $5 into the stock market. All is going according to plan.

Saturday rolls around, the week's almost over, and suddenly it hits you... your best friend's birthday is tomorrow, and you forgot to buy a gift. You can't show up emptyhanded, so you ask your parents to spot you a few bucks, promising to pay them back. A little debt isn’t a big deal, you'll just cover it with your video game budget in the next 2 weeks, but your parents don’t want it to spiral. So, they set a rule: you can never owe them more than $100.

That’s your debt ceiling: the most you’re allowed to owe.

For the U.S. government, the debt ceiling is the maximum amount of money it’s allowed to borrow. But instead of birthday gifts, the government uses that money to pay for things like schools, roads, the military, and even the interest on money it already owes.

Why Does the Government Borrow Money?

Even though the U.S. collects taxes, it often spends more than it earns, especially during wars, recessions, or emergencies (like COVID-19). Think of these events like the surprise birthday party from earlier. To cover these surprise costs, the U.S. borrows money by selling treasury securities to a wide range of investors, everyone from regular people like you and me to entire countries.

Treasury securities are government IOUs that promise to pay back the money you lend after a little while (like a few weeks), some time (a few years), or a long time (decades), plus extra money called interest. The short-term IOUs are called T-bills, the ones that take a few years are called T-notes, and the long-term ones that take decades are called T-bonds.

What Happens When We Hit the Limit?

If the government hits the ceiling and Congress doesn’t raise it, it can’t borrow any more money.

That means:

Social Security checks might stop
Government workers might not get paid
Investors could panic, fearing the U.S. won’t repay its debts

It’s like maxing out your credit card and not being allowed to raise the limit even if you’re still making money and trying to pay your bills.

Has This Ever Been a Problem?

Yes! In 2011 and again in 2023, the U.S. almost didn’t raise the debt ceiling on time. Because of this, big companies that rate how trustworthy the U.S. is with money, called Standard & Poor’s in 2011 and Fitch in 2023, said, “We don’t trust you as much anymore.” They lowered the U.S.’s credit rating, which is like getting a warning on your report card for money.

When the rating goes down, it means it could cost the government more money to borrow in the future, kind of like if a bank charges higher interest if it thinks you might not pay back a loan. So, these close calls made people worry about how the government manages its money.

So Why Not Just Raise It Every Time?

Good question! And one that’s been debated for a long time. Some people say constantly raising the debt ceiling encourages too much spending and a growing national debt. In other words, they worry that if the government can always borrow without limits, it might keep spending more than it earns and eventually pile up too much debt to pay back. Instead of just raising the limit every time, they believe we should find other ways to pay for what we need, such as cutting spending elsewhere.

Others argue that raising the debt ceiling simply allows the government to pay for what it has already committed to. They say refusing to raise it would be like giving away your credit card before paying the check for the meal you just bought.

That said, there is a general consensus among economists and politicians that the U.S. cannot keep raising its debt forever without consequences. Eventually, the government will need to find a balance between borrowing, spending, and managing the national debt responsibly.