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The debt ceiling itself is both an ill-conceived compromise and a relic of past governmental integrity. For its first 128 years as a republic, the United States was able to function without a debt ceiling. This was possible for the simple reason that U.S. government had no central bank and could not borrow beyond its ability to repay through taxation. And since the ability to tax is always limited by taxpayers' assets (and their extreme hostility to those who want to take them), legal gimmicks were not needed to prevent Congress from spending too freely. But the creation of the Federal Reserve in 1913 gave the Federal Government a potential means to borrow indefinitely by having the new bank buy its debt. Sensing this danger, the original Federal Reserve Act of 1913 prohibited the Fed from buying or holding government debt.
But just four years later the United States needed a means to raise money quickly to pay for its efforts in the First World War. The government passed an amendment to the charter to allow the Fed to purchase Treasury Bonds. Fearing (correctly) that this would create a mechanism for perpetual debt expansion, conservative lawmakers insisted that the amendment include a "debt ceiling" provision that would cap the amount that the government could borrow.
