A study describes the history of the US debt limit. Since 1939, the US Congress has imposed a limit on the total outstanding federal debt while delegating the task of designing and managing bonds to the Treasury. Prior to 1939, Congress designed each type of federal bond and set limits on how many could be issued, but set no explicit limit on the total debt. George Hall and Thomas Sargent used the limits on individual bond issues as stated in the authorizing legislation to determine the implicit federal debt limit between 1776 and 1939. The implicit debt limit rose as new bonds were issued over limited time periods and for specified purposes, usually to finance wars, and fell as bonds were redeemed, since a given bond could not be reissued after redemption. Therefore, the authors note, every increase in the debt limit effectively came with a guaranteed future reduction in the debt limit, provided that no new bonds were issued in the meantime. The authors report that these built-in debt limit reductions constrained subsequent federal spending, leading to budget surpluses that allowed the federal debt to be reduced. Since 1939, the debt limit has been reduced only five times, compared with 98 increases, according to the authors.
Article #17-19687: "Brief history of US debt limits before 1939," by George J. Hall and Thomas J. Sargent.
MEDIA CONTACT: Thomas J. Sargent, New York University, NY; tel: 646-415-4574; e-mail: <thomas.sargent@nyu.edu>
###