The U.S. debt ceiling — sometimes called the debt limit — is the legal limit on how much money the U.S. federal government can borrow to fund government operations.
U.S. government debt comes from bonds issued to individuals, businesses, and foreign governments, as well as intragovernmental loans. As of January 2025, the U.S. government owed some $36.1 trillion — meaning it had reached the current debt ceiling.
Because the government is now poised to exceed the debt limit, the cap on federal borrowing will need to be lifted in order to allow the government to meet its obligations. As of Q3 2025, lawmakers were anticipating a new debt ceiling later this year, to avoid the risk of default.
The U.S. has never defaulted on its debts, and doing so could roil markets here and abroad. If lawmakers don’t raise the debt ceiling, the U.S. could see a credit downgrade, a potential spike in interest rates, which could impact the value of the dollar and could destabilize markets.
Key Points
• The debt ceiling, or debt limit, refers to the maximum amount the federal government can borrow, by law.
• The current debt ceiling is $36.1 trillion, which is the amount the government owes as of Q3 2025.
• Ideally, the debt ceiling must be raised in 2025 in order for the government to borrow the funds it needs to repay its debts, or there could be a risk of default.
• The debt ceiling has been raised more than 100 times since World War II, but the U.S. has never defaulted on its debts.
• A default would lower demand for U.S. Treasuries, causing rates to rise, which could have a domino-like effect on domestic and global trade and investments.
What Is the Debt Ceiling?
All governments borrow money to fund various obligations. The United States has the largest debt obligation in the world, as of June 2025, with some $36.1 trillion in outstanding loans it has borrowed from individual investors, governments (like Japan, China, the U.K.), businesses, and even from itself, via intragovernmental loans.
The debt ceiling is set by the Department of the Treasury, and reflects the allowable amount the government can borrow to fund obligations such as interest payments on current debt, national programs like Social Security and Medicare, military salaries, and much more.
Recent Changes to the Debt Ceiling
Lawmakers suspended the debt ceiling from June of 2023 through January of 2025, when it was re-set to match the amount of the U.S. debt obligation at that time: some $36.1 trillion.
Because the debt ceiling only authorizes borrowing to cover existing obligations, and it does not allow for new spending, the government began 2025 in anticipation of another fight over whether to raise the debt ceiling yet again.
When federal spending bumps up against this limit, as it is right now, Congress must vote to raise the debt ceiling. And there is ongoing concern about whether it’s sustainable to continue to issue new debt.
The current debt ceiling of $36.1 trillion represents about 122% of the nation’s gross domestic product, or GDP, and grows by about $1 trillion every quarter.
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What Does the Debt Ceiling Mean for Investors?
In the last 65 years, Congress has either raised, extended, or changed the debt ceiling 78 times to allow for increased borrowing and reliable debt payments to Treasury bondholders. That’s largely because the U.S. government has always honored and repaid its debts, and thus owning U.S. government bonds has long been considered a safe haven for investors looking for stable securities.
The debt ceiling isn’t simply about bond payments, however. It’s a reflection of the financial stability of the U.S. If the government were forced to default on its obligations, this would not only be a historical event, the likely downgrade of U.S. creditworthiness could spark upheaval in markets worldwide.
The Debt Ceiling, the Economy and Securities
For example, a downturn in demand for government bonds would push up interest rates, which could spur inflation and lower the value of the dollar — with a decline in equity markets as well.
• Higher interest rates would spell higher inflation.
• Higher inflation impacts the value of the dollar.
• Equity markets here and abroad could react negatively to a higher rate environment, fuelling volatility.
Although the current trade environment is in flux, if a default came to pass these combined factors have the potential to spark a financial crisis.
What Is the Status of the Debt Ceiling?
While precedent suggests that lawmakers will likely vote to increase the debt ceiling in 2025, it’s unclear how the current debt ceiling debate will pan out. Some potential outcomes:
• Congress could vote to raise the debt limit, as it has done since the debt ceiling was first created in 1917 (see more on the history of the debt ceiling below).
• Both political parties could negotiate a way forward, by agreeing to cut spending while also raising the debt ceiling.
• The president could use his executive powers to bypass the debt ceiling.
Finally, although very unlikely, as noted above, the government could default on its debts. This has never occurred, and would be unprecedented — potentially leading to a global financial crisis.
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Where Did the Debt Ceiling Come From?
Congress first enacted the debt ceiling in 1917, at the beginning of World War I, through the Second Liberty Bond Act. That act set the debt ceiling at $11.5 billion. The creators of the debt ceiling believed it would make the process of borrowing easier and more flexible.
In 1939, as World War II loomed on the horizon, Congress established a debt limit of $45 billion that covered all government debt.
Before the creation of the debt ceiling, Congress had to approve loans individually or allow the Treasury to issue debt instruments for specific purposes. The debt ceiling granted the government greater freedom to borrow funds via issuing bonds, allowing it to spend as needed. And over time the ceiling was often raised, and rarely contested.
The debt ceiling has, however, become a partisan pain point in recent years.
Benefits and Drawbacks of the Debt Ceiling
The debt ceiling has several advantages. It allows Congress to fund government operations, and it simplifies the process of borrowing. It also, theoretically, serves as a way to keep government spending in check because the federal government should consider the debt ceiling as it passes spending bills.
However, there are also some drawbacks. Congress has consistently raised the debt ceiling when necessary, which some analysts claim dampens the legislative branch’s power as a check and balance. And if Congress does not increase the debt ceiling, there is a risk that the government will default on its loans, lowering the country’s credit rating and making it more expensive to borrow in the future.
Recent Overview of the Debt Ceiling and Congress
In the last 15 years, Congress has found itself embroiled in partisan battles over raising the debt ceiling. For example, during the Obama administration, there were two high-profile debt ceiling standoffs between the president and Congress.
In 2011, some members of Congress threatened to allow the U.S. government to hit the debt ceiling if their preferred spending cuts were not approved.
This standoff led Standard & Poor’s, a credit rating agency, to downgrade U.S. debt from a AAA to a AA+ rating.
Moreover, in 2013 there was a government shutdown when members of Congress would not approve a bill to fund the government and raise the debt ceiling unless the president made their preferred spending cuts. This standoff ended after 16 days when Congress finally approved a spending package and a debt ceiling increase partially due to the potential for a further downgrade of U.S. debt.
More recently, after a showdown in Congress in June 2023, lawmakers voted to suspend the debt ceiling altogether, until January 1, 2025.
Then, the debt ceiling was reinstated on January 2, 2025, reflecting the amount of outstanding debt from January 1, and setting the stage for another standoff. On May 16, Moody’s downgraded the U.S. credit rating one notch, from Aaa to Aa1.
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What Happens If Congress Fails to Raise the Debt Ceiling?
The current debate centers on finding a long-term solution for raising the debt ceiling. If the executive and legislative branches can not reach an agreement, there could be several consequences.
Potential Consequences for the Economy and Markets
• The government will swiftly run out of cash if it cannot issue more bonds. At that point, the money the government has coming in would not cover the millions of debts that come due each day. The government may default, at least temporarily, on its obligations, such as pensions, Social Security payments, and veterans benefits.
• A U.S. government default could also have a ripple effect throughout the global economy. Domestic and international markets depend on the stability of U.S. debt instruments like Treasuries, which are widely considered among the safest investments.
• Interest rates for Treasury bills could rise, and interest rates across other sectors of the economy could follow suit, raising the borrowing cost for home mortgages and auto loans, for example.
• A default could also create stock volatility in global equity markets, turmoil in bond markets, and push down the value of the U.S. dollar.
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What Are Extraordinary Measures?
When the government hits the debt limit, there are certain “extraordinary measures” it can take to continue paying its obligations. For example, the government can suspend new investments or cash in on old ones early. Or it can reduce the amount of outstanding Treasury securities, causing outstanding debt to fall temporarily.
These accounting techniques can extend the government’s ability to pay its obligations for a very short amount of time.
Once the government exhausts its cash and these extraordinary measures, it has no other way to pay its bills aside from incoming revenue, which doesn’t cover all of it. Revenue from income tax, payroll taxes, and other sources only cover about 80% of government outlays, according to the U.S. Treasury.
Can Congress Get Rid of the Debt Ceiling?
As noted above, the debt ceiling debate has become fertile ground for partisan fighting in Congress, but theoretically, it doesn’t have to be that way. For example, Congress could give responsibility for raising the debt ceiling to the president, subject to congressional review, or pass it off to the U.S. Treasury.
Congress could also repeal the debt ceiling entirely, which it came close to doing in mid-2023.
The Takeaway
A failure to raise the debt ceiling and a subsequent default on U.S. government debt obligations could have a significant impact on financial markets, from increased volatility to a decline in the value of the dollar to a lower national credit rating or even a recession. Given such consequences, it’s likely that Congress will continue to find ways to raise the debt ceiling, although political battles around the issue may continue.
Even if the debt ceiling continues to go up, the growing national debt could lead to economic instability, according to some economists. It’s hard to predict, since the debt ceiling has been raised about 100 times since World War I, when it was first established, and the U.S. has yet to face grave consequences as a result.
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FAQ
How much is the U.S. debt in 2025?
The U.S. government currently owes well over $36 trillion in debt to investors, businesses, other governments, and even itself via intragovernmental loans.
Who is the U.S. most in debt to?
The Federal Reserve is the largest domestic holder of U.S. debt, because it keeps Treasuries as part of monetary policy. Foreign countries also hold large amounts of U.S. debt, with Japan, China, and the U.K. in the top three.
Can the U.S. ever get out of debt?
While it might be possible, getting out of debt would require substantial changes to policies and programs and could take decades to accomplish.
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