what is the 2011 u s debt ceiling crisis 
the 2011 u s debt ceiling crisis was a contentious debate in congress that occurred in july 2011 regarding the maximum amount of debt that the federal government should be allowed understanding the 2011 u s debt ceiling crisisthe federal government has rarely achieved a balanced budget and its budget deficit ballooned following the 2007 08 financial crisis in the 2008 fiscal year the deficit stood at 458 6 billion widening to 1 4 trillion in 2009 as the government engaged in a massive fiscal policy response to the economic downturn 1from 2008 to 2010 congress raised the debt ceiling from 10 6 trillion to 14 3 trillion 3 in 2011 as the economy showed early signs of recovery and federal debt approached its limit once again negotiations began in congress to balance spending priorities against the ever rising debt burden a heated debate ensued pitting proponents of spending and debt against fiscal conservatives pro debt politicians argued that failing to raise the limit would require immediate cuts to spending already authorized by congress which could result in late partial or missed payments to social security and medicare recipients government employees and government contractors moreover they asserted that the treasury could suspend interest payments on existing debt rather than withhold funds committed to federal programs the prospect of cutting back on already promised spending was labeled a crisis by debt proponents on the other hand the specter of a technical default on existing treasury debt roiled financial markets fiscal conservatives argued that any debt limit increase should come with constraints on the growth of federal spending and debt accumulation the u s has raised the debt limit 78 times since 1960 most recently it raised the debt limit in 2023 45outcome of the 2011 u s debt ceiling crisiscongress resolved the debt ceiling crisis by passing the budget control act of 2011 which became law on aug 2 2011 6 this act allowed the debt ceiling to be raised by 2 4 trillion in two phases or installments in the first phase a 400 billion increase would occur immediately followed by another 500 billion unless congress disapproved it the second phase allowed for an increase of 1 2 trillion to 1 5 trillion subject to congressional disapproval as well 2in return the law included 900 billion in slowdowns in planned spending increases over a 10 year period it also established a special committee charged with finding at least 1 5 trillion in additional savings 2in effect the legislation incrementally raised the debt ceiling from 14 3 trillion to 16 4 trillion by jan 27 2012 3following the passage of the act standard poor s s p took the radical step of downgrading the united states long term credit rating from aaa to aa even though the u s did not default the s p report says the downgrade reflects our opinion that the fiscal consolidation plan that congress and the obama administration recently agreed to fall short of what in our view would be necessary to stabilize the government s medium term debt dynamics the credit rating agency cited the unimpressive size of deficit reduction plans relative to the likely future prospects for politically driven spending and debt accumulation 7debt approval process leading to the 2011 u s debt ceiling crisisthe u s constitution gives congress the power to borrow money before 1917 this power was exercised by congress authorizing the treasury to borrow specified amounts of debt to fund limited expenses such as wartime military spending which would be repaid after the end of hostilities this kept the national debt directly linked to authorized spending in 1917 congress imposed a limit on federal debt as well as individual issuance limits in 1939 congress gave the treasury more flexibility in how it managed the overall structure of federal debt giving it an aggregate limit 8 however by delegating debt management authority to the treasury congress was able to break the direct connection between authorized spending and the debt that finances it while allowing greater flexibility to raise spending this practice also created a need for congress to repeatedly raise the debt limit when spending threatens to overrun available credit due to occasional political resistance to the idea of continually expanding the federal debt this process of raising the debt limit has at times engendered controversy which occurred during the 2011 debt ceiling crisis longer term implications of 2011 debt ceiling crisisthe american economy politics and financial markets were all affected in the long run by the country s 2011 debt limit issue as mentioned before standard poor s downgraded the united states credit rating for the first time ever from aaa to aa this resulted in several longer term implications first the protracted debt ceiling talks and brinkmanship had an adverse effect on consumer and corporate confidence on aug 8 2011 the s p 500 dropped 79 2 points while the nasdaq composite index dropped 174 72 points each of those two indexes lost over 6 6 of its value that day with the dow jones industrial average djia dropping 634 points or 5 55 9concerns about the long term viability of u s government debt were raised as a result of the debt limit crisis s failure to address the underlying fiscal issues the nation s fiscal stability and long term economic prospects may be impacted by the unsolved concerns around budget deficits and the national debt most recently the u s senate has increased the debt ceiling limit to 31 4 trillion 10the debt limit issue and the ensuing credit rating cut had some effect on the u s dollar even while there may not have been much of an immediate impact it prompted concerns about the strength and stability of the dollar in the long run the debt limit debate also sparked talks about possible adjustments to both the budgetary procedures and the debt ceiling mechanism measures have been taken to prevent similar crises in the future such as changes to the budgeting schedule and discussions about prospective changes to the debt cap structure 