J: Few exercises in politics are more futile and pointless (L: and time-consuming and distracting) than the regular jousting in Congress over increases in the total amount of money the US government is authorized to borrow. According to the US Treasury, Congress has acted 78 separate times since 1960 to permanently raise, temporarily extend or revise the definition of the types of debt subject to the ceiling. These actions have been taken 49 times with a Republican in the White House and 29 times with a Democrat there.
A brutal fight over this issue took place in the summer of 2011. It became the subject of a marvelous book on the debacle by Bob Woodward, The Price of Politics, along with no lasting change in government policies or practices.
In 2015, Congress basically threw up its hands and passed a bill, signed into law by President Obama, that funded the government for two years and suspended the debt ceiling through March 15, 2017. That meant the new ceiling was whatever the government owed on March 16. Since April is an enormous surplus month (L: you pay taxes then, right?), it is only now that we’re getting ready for another big fight over this silly concept.
The US had no debt ceiling from 1789-1917. Every bond issued by the Treasury was approved by a separate act of Congress. When the US became involved in what is now known as World War I, it became obvious a better system was needed.
Congress set up the limit in the Second Liberty Bond Act of 1917. Now that we have had 100 years of experience with the idea, it is time to get rid of it.
All the debt ceiling has accomplished in recent years is to make whomever is the Secretary of the Treasury scramble like mad to avoid an unprecedented default on the obligations of the federal government. The 2011 wrangling in Congress over the debt ceiling came so close to the edge that Standard and Poor’s (S&P), one of the major bond-rating agencies in the US, lowered the credit rating of the federal government from AAA (excellent) to AA+ (outstanding). This was the first downgrade of US federal debt, but it did not cause Congress to change its ways. One reason for that was that the other two major ratings agencies—Moody’s and Fitch—did not follow the lead of S&P.
All the debt ceiling does is limit the amount of money the US Treasury can borrow. It does nothing to reduce the rate of growth of federal spending in any lasting way, which is the real problem. It would be a really good idea if Congress would repeal the debt ceiling altogether, suspend it for twenty years or copy Denmark by making it so high ($40-$50 trillion would do it) that it won’t be a problem for many years.
Many economists have argued for repeal of the debt ceiling. There’s an excellent op-ed piece today (June 20) in The Wall Street Journal entitled, “Don’t Raise the Debt Limit—Repeal It.” It was written by Jason Furman, who was Chairman of the President’s Council of Economic Advisers from 2013-2017 and Rohit Kumar, who was policy director and deputy chief of staff for Senate Majority Leader Mitch McConnell (R-KY) from 2007-2013.
Here’s hoping (beyond any real expectation) that Congress listens this time. There are far more important issues, such as tax reform and getting a responsible budget done on time, that would be far better uses of Congressional time.