The debt ceiling: an obscure financial fiction that almost no other country deals with
Well, we are on the precipice of another entirely self-created economic catastrophe. What’s new? This one, however, is almost ridiculously easy to avoid. Congress just needs to change the debt ceiling just like it has almost 100 times since World War II.
The past is perhaps the best measure we have of what is likely to happen in the future. Yet just because something has happened 100 times in the past doesn’t necessarily mean it will happen again. Dinosaurs were doing very well for over a hundred million years before a large asteroid collapsed to make them disappear. So it probably wouldn’t hurt to know a little more about the debt ceiling and what is likely to happen if lawmakers don’t immediately step out of their backyard and do something about it.
The debt ceiling was first set at $ 11.5 billion in 1917. It was originally intended to simplify the issuance of US debt, because after its passage Congress no longer needed to approve each debt issue separately. In a word, the debt ceiling is the maximum dollar value that the US Treasury can borrow through the sale of bonds.
When first enacted, the debt ceiling seemed like a good idea, but as the U.S. economy continued to grow and became even more complex, the debt ceiling turned into a Partisan soapbox to stand on and hold the country hostage on every now and again. Failure to raise the debt ceiling to pay off outstanding obligations that the United States has already incurred would weaken the country’s credit rating and cause massive economic catastrophe. It is not good for the United States to default on its debt.
At present, the debt ceiling is $ 28.4 trillion. Congress has until Oct. 18 to raise the US debt ceiling to avoid the first US debt default. In addition to creating a crater for the economy as a whole, a failure to raise the debt ceiling would likely immediately result in delayed wages for U.S. troops, a suspension of Social Security benefits for some 50 million seniors, and soaring consumer lending rates. Not exactly the popular political results here.
Again, these are not new expenses. The debt ceiling represents the maximum that the United States can borrow, and this borrowing is intended to pay off obligations that the United States has already incurred. Even so, it’s hard to explain the nuances to the American people as they are so busy watching “Bachelor in Paradise” and inhaling Chick-fil-A, so Republicans are refusing to support any increase in the ceiling of the debt in order to portray Democrats as fiscally irresponsible for wanting to raise the debt ceiling and thus avoid economic collapse. This is not how it all works, as the increased debt ceiling now largely serves to keep paying for all the bullshit Donald Trump spent on American money. when he oversaw the third largest increase in the federal deficit in the history of the United States.
Nor is it a routine control of public spending. The oversight is supposed to happen when Congress passes a budget and the President promulgates it – the debt ceiling creates strange incentives later for a partisan posture on already passed laws. This is probably why almost no other country has a debt ceiling, with the notable exception of Denmark, which has a very high debt ceiling that it never reaches.
The Senate was put to the vote today on a Democratic proposal to suspend the debt ceiling until the end of 2022. This measure needs 60 votes to move forward, and the Senate is divided 50-50. So don’t hold your breath on this one.
It is likely that in the end, Congress will strive to raise or suspend the debt ceiling just in time, as it has done many times before. We really shouldn’t have to go through this whole song and dance every time, though. The United States seems to like torturing itself with obscure legal demands that hardly anyone else in the world apparently finds necessary. And you never know: one of those moments could finally be the big asteroid strike.
Jonathan Wolf is a litigator and author of Your Debt Free JD (affiliate link). He has taught legal writing, writes for a wide variety of publications, and has done both his job and his pleasure in having financial and scientific knowledge. Any opinions he expresses are probably pure gold, but are nonetheless his only and should not be attributed to any organization he is affiliated with. He wouldn’t want to share the credit anyway. He can be contacted at [email protected].