The United States debt-ceiling crisis of 2011 was a stage in the ongoing political debate in the United States Congress about the appropriate level of government spending and its consequential impact on the national debt and deficit. The Republican Party, which had retaken the House of Representatives the prior year, demanded that the President negotiate over deficit reduction in exchange for an increase in the debt ceiling, the statutory maximum of money the Treasury is allowed to borrow. Were the United States to broach the debt ceiling and not be able to use other "extraordinary measures", the Treasury would have to either default on payments to bondholders or immediately curtail payment of funds owed to various companies and individuals that had been mandated but not fully funded by Congress. Both situations would likely have led to a significant international financial crisis. On July 31, two days prior to when the Treasury estimated the borrowing authority of the United States would be exhausted, Republicans agreed to raise the debt ceiling in exchange for a complex deal of significant future spending cuts. The crisis did not permanently resolve the potential of future use of the debt ceiling in budgetary disputes, as shown by the subsequent debt-ceiling crisis of 2013. The crisis sparked the most volatile week for financial markets since the 2008 crisis, with the stock market trending significantly downward. Prices of government bonds ("Treasuries"), rose as investors, anxious over the dismal prospects of the US economic future and the ongoing European sovereign-debt crisis, fled into the still-perceived relative safety of US government bonds. Later that week, the credit-rating agency Standard & Poor's downgraded the credit rating of the United States government for the first time in the country's history, though the other two major credit-rating agencies, Moody's and Fitch, retained America's credit rating at AAA. The Government Accountability Office (GAO) estimated that the delay in raising the debt ceiling increased government borrowing costs by $1.3 billion in 2011 and also pointed to unestimated higher costs in later years. The Bipartisan Policy Center extended the GAO's estimates and found that delays in raising the debt ceiling would raise borrowing costs by $18.9 billion. Throughout 2011, Standard & Poor's and Moody's credit rating services issued warnings that US debt could be downgraded because of the continued large deficits and increasing debt. According to the CBO's 2011 long-term budget outlook, without major policy changes the large budget deficits and growing debt would continue, which "would reduce national saving, leading to higher interest rates, more borrowing from abroad, and less domestic investment -- which in turn would lower income growth in the United States." The European sovereign debt crisis was occurring throughout 2010--2011, and there were concerns that the US was on the same trajectory. In a report issued by the credit rating agency Moody's, analyst Steven Hess suggested that the government should consider getting rid of the limit altogether, because the difficulty inherent in reaching an agreement to raise the debt ceiling "creates a high level of uncertainty" and an increased risk of default. As reported by The Washington Post, "without a limit dependent on congressional approval, the report said, the agency would worry less about the government's ability to meet its debt obligations."[86] Other public figures, including Democratic ex-President Bill Clinton and Republican ex-CBO director Douglas Holtz-Eakin, have suggested eliminating the debt ceiling. http://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis_of_2011

• published: 13 Jun 2014
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