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The Debt Ceiling: Always Under Construction

May 23, 2023

The Masters - the annual golf tournament in Augusta, Georgia-has promoted itself as A Tradition Unlike Any Other for four decades. It's great marketing.

While not an annual tradition, the U.S. "debt ceiling" has become Another Tradition Unlike Any Other, minus the great marketing.

The debt ceiling is a legislative limit on the amount of national debt that can be incurred by the U.S. Treasury, thus limiting the risk of a public debt crisis. The challenge is that the debt ceiling is a nominal figure-currently $31.4 trillion-which needs to be continually revised as the size of the economy grows.

If you want a short explainer, you can read Morningstar's "The Debt Ceiling: A Quick Guide."

The obvious risk is that a new limit can't be agreed on, which could lead to a technical default of the U.S. government. Treasury Secretary Janet Yellen said recently that failure to raise the debt ceiling will cause a "steep economic downturn" in the U.S., and she reiterated a previous warning that the Treasury Department may run out of measures to pay its debt obligations by June.