The Debt Ceiling: An Arcane Financial Fiction That Almost No Other Country Deals With
We're on the brink of a self-inflicted economic catastrophe. What else is new?
Well, we’re on the precipice of another entirely self-created economic catastrophe. What else is new? This one, though, is almost laughably easy to avoid. All Congress has to do is modify the debt ceiling just like it has close to 100 times since World War II.
The past may be the best measure we have as to what is likely to happen in the future. Still, just because something has happened 100 times in the past doesn’t mean it’s necessarily going to happen again. Dinosaurs were doing just fine for well over a hundred million years before a big asteroid came down to smack them out of existence. So, it probably wouldn’t hurt to know a little bit more about the debt ceiling, and what is likely to happen if lawmakers don’t immediately get off their hindquarters to 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 U.S. debt, because after it was enacted Congress no longer needed to separately approve each issuance of debt. In a nutshell, the debt ceiling is the maximum dollar value the U.S. Treasury can borrow through bond sales.
When it was first enacted, the debt ceiling seemed like a good idea, but as the U.S. economy continued to develop and become even more mind-numbingly complex, the debt ceiling devolved into a partisan soapbox upon which to stand and hold the country hostage every now and again. Failing to increase the debt ceiling to pay for ongoing obligations that the United States has already incurred would wither the country’s credit rating and cause a gigantic economic disaster. It’s not good for the U.S. to default on its debt.
Right now, the debt ceiling stands at $28.4 trillion. Congress has until October 18 to raise the U.S. debt ceiling to prevent the first ever default on U.S. debt. In addition to cratering the broader economy, a failure to raise the debt ceiling would likely immediately result in a pay delay for U.S. troops, a suspension in Social Security benefits for some 50 million seniors, and a spike in consumer borrowing rates. Not exactly popular policy outcomes here.
Again, this is not new spending. The debt ceiling represents the most the U.S. can borrow, and that borrowing is meant to pay for obligations the U.S. has already incurred. Even so, it is hard to explain nuances to the American populace while they’re so busy watching “Bachelor in Paradise” and inhaling Chick-fil-A, so Republicans are refusing to support any debt ceiling increase in order to portray Democrats as fiscally irresponsible for wanting to raise the debt ceiling and thereby avoid economic collapse. Which is not how any of this works, because the debt ceiling increase now is largely to keep paying for all the crap Donald Trump spent U.S. money on when he oversaw the third-biggest increase in the federal deficit in U.S. history.
This is not just a routine check and balance on government spending either. The oversight is supposed to happen when Congress passes a budget and the president signs it into law — the debt ceiling creates weird incentives later for partisan posturing on already passed laws. That’s 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 hits.
The Senate was set for a vote today on a Democratic proposal to suspend the debt ceiling through the end of 2022. This measure needs 60 votes to advance, and the Senate is divided 50-50. So don’t hold your breath on this one.
Probably, ultimately, Congress will get its act together to raise or suspend the debt ceiling just in time, just like it has numerous times before. We really shouldn’t have to go through this whole song and dance every time, though. The United States seems to love torturing itself with arcane legal requirements that almost no one else in the world apparently finds necessary. And you never know: One of these times could finally be the big asteroid strike.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.
