The Senate voted Thursday to raise the amount of debt the Treasury is allowed to have by $290 billion. The legislation, which passed by a 60-39 vote, raised the debt ceiling from $12.104 trillion to $12.394 trillion.
As of Tuesday, the Senate had been only $64 billion below the $12.104 trillion limit, so the new limit was created. This new limit covers the Treasury's borrowing needs through mid-February.
If the debt limit had been surpassed, the U.S. would have essentially been in default. This would hurt bonds, the dollar and creditors' portfolios. Senate Budget Chairman Kent Conrad has said that such a situation would be "catastrophic."
"The Treasury Department informed Congress we must again increase the debt limit or there could be a reduction in the credit-worthiness of the US Government," said Senate Finance Committee Chairman Max Baucus, D-Mont.
He added, "This responsibility is serious and a sobering reminder we have work to do in restoring fiscal balance and discipline to government."
Senator Judd Gregg, R-N.H., on the other hand, was not happy about the decision, arguing that the government "is in a hole, fiscally speaking, but our leaders cannot seem to stop digging."
"As a result, we find ourselves here on Christmas Eve, forced to pass an increase in the nation's credit limit," he added. "But incredibly, it won't be enough - we'll be back in January to consider yet another increase in the credit limit that probably will only allow us to borrow through the middle of next year if we're lucky."
He said the fact that such an increase was needed in the first place is a red flag "signaling that Congress has a serious spending problem."
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