The coming debt ceiling battle is the topic du jour in Washington. Republicans argue that simply raising the ceiling over and over again is an unsustainable policy, so they're demanding budget cuts. Many democrats agree that the U.S. has a deficit problem, but they stress the necessity of raising the ceiling promptly, to prevent default or problems funding other U.S. obligations. When assessing the need for fiscal reform, it helps to look back at the past.
The debt ceiling was first set in September 1917. At that time, Congress authorized the issuance of about $7.5 billion in U.S. bonds and another $4 billion in certificates of indebtedness, under the Second Liberty Bond Act. How much was $11.5 billion dollars back then if you account for inflation? In March 2011 dollars, it would be $193.2 billion. Currently, the debt limit is set at $14.3 trillion -- so inflation doesn't tell the whole story! To be sure, Washington's love affair with debt has grown.
So first, here's the debt limit throughout history, charted along with actual U.S. debt outstanding:
The chart shows that the debt ceiling (thick red line) didn't even hit $1 trillion until 1982 -- less than 30 years ago. Since then, it's increased exponentially. Of course actual debt outstanding (thin green line) moves pretty much in sync with the debt ceiling, as it generally only rises when the government decides to issue more debt.