In advance of President Obama's 11:30 a.m press conference to urge Congress to raise the debt limit, the Factchecker explains how we got here.
It started with a war.
In the early decades of the Republic, Congress preferred to issue debt for specific purposes, such as issuing bonds to build the Panama Canal. During the Spanish-American War of 1898, Congress authorized the Treasury secretary to issue short-term debt and some longer-term debt with specific limits on maturities.
But World War I was a conflict with unknowable costs, making targeted legislation difficult. At first Congress established a $5 billion limit on new issues of bonds, along with the immediate issuance of $2 billion in one-year certificates of indebtedness, in the First Liberty Loan Act of 1917.
But very quickly another law was needed — the Second Liberty Bond Act of 1917 — in which Congress set a general limit on borrowing: $9.5 billion in Treasury bonds and $4 billion in one-year certificates. This freed the Treasury secretary to begin to figure out the best mix of securities to issue, without nearly as much congressional oversight as before.
By the end of World War I, the limit on Treasury obligations had been raised to $43 billion, which was considerably more than the $25 billion in outstanding public debt in 1919. For decades, future increases in the national debt were simply amendments to the Second Liberty Bond Act. But it was not until 1939 — on the eve of World War II — that Congress eliminated all of the different limits on types of bonds, thus creating an overall aggregate limit on the national debt.