US Government Debt Different - Finance Department - University of ...

258The 2011 Debt Limit Impasse: Treasury’s Actions & The Counterfactual – What Might Have Happened if the National Debt Hit the Statutory LimitIntroductionDuring the summer of 2011, as the nation’s outstanding debt approachedthe statutory limit, political leaders in Washington cameto an impasse during negotiations to extend the country’s borrowingauthority. The statutory debt limit, 1 first established in 1917, actsas a ceiling to the amount of debt the U.S. Treasury can borrow inorder to finance deficit expenditures. 2 When appropriated expensesare greater than incoming revenues, failures to raise the limit couldcause the United States to default on its obligations. The debt limithas been raised by Congress 78 times since 1960, 3 typically withoutcontroversy. In the last two decades, however, it has increasinglybeen used as a bargaining chip in broader negotiations between thepolitical parties. In 2011, as tensions about the nation’s increasingdebt and annual deficits came to the fore of political discussion, thedebt limit was once again invoked as a forcing mechanism in broaderpolicy negotiations.Part I of this paper will explore the Department of Treasury’s effortsto extend the nation’s borrowing authority during the 2011 impassein order to provide political leaders more time for negotiations andto prevent the country from reaching the statutory limit. Part II willdiscuss what the Executive Branch might have done if the limit hadbeen reached, including both the legal justifications and practicalimplications of the unprecedented choices.I: 2011 Debt Limit ImpasseA. Political Backdrop to the 2011 Debt Limit ImpasseOn May 16, 2011, the national debt reached the statutory limitof $14.294 trillion, 4 amounting to more than 250% of the same131 U.S.C. § 3101(b).2See generally D. Andrew Austin & Mindy R. Levit, The Debt Limit: History and Recent Increases,Cong. Research Serv. (Feb. 2, 2012), available at http://www.hsdl.org/?view&did=707321.3Dep’t of Treasury, Debt Limit: Myth v. Fact (available at http://www.treasury.gov/initiatives/Documents/Debt%20Limit%20Myth%20v%20Fact%20FINAL.pdf).4Austin & Levit, supra note 2, at 1. Feb. 12, 2010 legislation (Pub. L. No. 111-139) increasedthe statutory debt limit to $14.29 trillion.