The U.S. government hit the debt ceiling today. This makes life very complicated for the Treasury Department, which now needs to shuffle money around to pay the bills.
But originally, as it turns out, the debt ceiling was supposed to make things easier. A hundred years ago, it seemed so straightforward.
When Congress wanted to spend, it spent. And if it needed to borrow, it approved the sale of a bunch of Treasury bonds. Congress would consider each new bond individually.
"They would literally approve the form of the security, the purpose of the security, what the duration was going to be, what the interest rate was going to be," says Susan Irving from the Government Accountability Office.
But with the start of World War I, that process became way too time consuming.
"If you think about the number of decisions that go on during a war," Irving says, "you're coming in constantly. 'Oh, now we need to borrow up to so much to build more tanks' "
So Congress delegated the details of bond sales to the Treasury Department.
But Don Ritchie, the official historian of the Senate, says Congress was wary about giving too much power over to the Treasury.
"They knew they had to do it, there was an urgency to it," Ritchie says. "But one way to control it was to say, 'You have a cap, you just can't go beyond that limit."
So in 1917, Congress came up with the first real debt limit. They wanted to make their lives easier, but not give up too much control. Sort of like putting a leash on a toddler.
Over the next 90 years, though, the debt limit did little to control the growing debt.
Congress spent more and more. The toddler grew into a giant, and Congress just ordered longer leashes every couple of years.
But there's often a lot of drama when it comes time to raise the limit. As Congress debates, the Treasury tries every trick it has to prevent the U.S. from running out of cash.
The government has about 11 weeks to get this settled. In the meantime, the Treasury department is starting to dip into the retirement accounts of government workers, giving them IOUs and freeing up more cash to keep the government running.
This kind of move has also happened before, but the difference this time is that the U.S. borrows so much now there's no wiggle room.
If Congress hasn't raised the debt ceiling by August 2nd, government spending will have to be slashed by 40 percent. Whether it's military salaries, Social Security payments or Medicare, a lot of people won't get paid.
ROBERT SIEGEL, Host:
But Robert Smith of our Planet Money team reports that the whole idea of a debt limit was meant to make things easier.
ROBERT SMITH: One hundred years ago, it all seemed so straightforward.
SMITH: Congress appropriates all monies.
SMITH: Don Ritchie, the Senate historian, says when Congress wanted to spend, it spent. And if it needed to borrow, it approved the sale of a bunch of Treasury bonds.
SMITH: They were thinking ahead as to what monies would be needed.
SMITH: Susan Irving from the Government Accountability Office says in the old days, Congress would consider each new piece of debt individually.
SMITH: And they would literally approve the form of the security, what the duration was going to be.
SMITH: So this could take all day long. You could say bridges, post offices, a canal through Panama.
SMITH: So much for shoeing the horses for the Department of X, I mean, really.
SMITH: Congressmen earned their salaries back in those days. But with the start of World War I, such due diligence became way too complex.
SMITH: You think about the number of decisions that go on during a war. You know, suddenly, if they're going to have to approve every single one, you're coming in sort of constantly. Oh, now we have to borrow up to so much to build up more tanks.
SMITH: So the wartime Congress said enough, and it delegated the hard part. Hey, Treasury Department, they said, you borrow whatever you have to in order to cover our spending, OK? But Don Ritchie says that Congress was wary about giving too much power over to the Treasury.
SMITH: They knew they had to do it. There was an urgency to it. But one way to control it of course was to say you have a cap, there's - you just can't go beyond that limit.
SMITH: But there's always a lot of drama. Congress argues back and forth on the debt limit, and the Treasury tries every trick it can to keep the U.S. from running out of cash.
SMITH: You see the daily Treasury statement. You see the buildup of a cash balance. You see Treasury doing constant forecasting.
SMITH: Robert Smith, NPR News, New York. Transcript provided by NPR, Copyright NPR.