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 adjusted for inflation? In March 2011 dollars, it would be roughly $193 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 tremendously over the past 25 years.
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 right in sync with the actual debt ceiling, as it generally only rises when the government decides to issue more debt.
You can see the ceiling is a sort of step function, as it increases based on Washington's whims, not a natural mechanism. This chart also shows that increases in the debt ceiling are quite common. Over the 94-year period, the debt ceiling has been revised 102 times. Depending how high Congress raises the ceiling in coming months, it could potentially surpass 100% of our nation’s GDP. It would take at least a $700 billion increase: currently the ceiling is set at $14.3 trillion and would have to be a little greater than $15 trillion to move past the annualized GDP estimate. The last time Congress raised the debt ceiling, in February 2010, it increased the limit by almost $2 trillion.
In the end, a decision comes down to a determination of whether the potential harm of the budgetary cuts necessary to avoid raising the ceiling are worth the risk they pose to the U.S. economic recovery. But history does help show that longer-term fiscal reform is needed to cure Congress of its addiction to debt.
