Posts Tagged ‘debt ceiling’

Understanding the Debt Ceiling

November 17th, 2013

Last night the Republican Senate very irresponsibly refused to pass an increase in the debt ceiling which is necessary if we ‘re going to borrow and keep the government running…I sounded off and told them I’d veto every damn thing they sent down unless they gave us a clean debt ceiling bill. That ended the meeting.” —Ronald Reagan (Nov. 1st, 1983; The Reagan Diaries, p. 192)
debt ceiling negotiationsRonald Reagan, the patron saint of the Republican Party, once said of the debt ceiling: “The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility – two things that set us apart from much of the world.” (source)

In 1987, he said, “The choice is for the United States to default on its debts for the first time … or to accept a bill that has been cluttered up. This is just another example of Congress trying to force my hand.” His treasury secretary said, “To play around with the debt limit this way means really that you’re playing with dynamite…There is a gun at [the president’s] head, if you will.” (source)

This government-cripling tactic accelerated under the Gingrich-led House in the 1990s, and became far more radical starting in 2010 when Tea Party Republicans took the House back from Democrats. The debt ceiling is now being used as a tool to hold the economy hostage in exchange for minority rule of the government. This approach has created a Federal Government in unprecedented gridlock. But this approach to the debt ceiling is a recent trend, and should not be used as a way to rule from a minority position. In fact, the debt ceiling is a highly misunderstood procedure. If understood correctly, the American people would never tolerate their Republican representatives in the House to use it in this way.

Sean Wilentz’s article in Rolling Stone gives a useful history of the debt ceiling:

The Republicans either believe, or would have you believe, that the debt ceiling limits the size of the national debt and thus limits government spending. Raising it, Rep. Walter Jones of North Carolina has remarked, is just another way of saying, “Well, you’ve got a little bit more credit – keep spending.” The words “debt ceiling” or “debt limit” can certainly sound as if that’s what’s involved. But these assertions are false.

The debt ceiling dates back to America’s entry into World War I. Contrary to a widespread misimpression, it came into existence not as a constraint on congressional spending, but in order to make government fiscal procedures less cumbersome amid the pressures of mobilizing for war. It had – and has – nothing to do with authorizing spending; Congress does that as part of the normal legislative process. Nor does the ceiling have anything to do with annual deficit levels, which explains why even today, with the deficit shrinking, Congress still needs to raise the debt ceiling. Rather, the ceiling is an artificial cap, determined by Congress, on the amount that the government can borrow to cover obligations already made.

Through the era of World War II, the limit looked to some like it might actually act as a useful check on government borrowing. But over the decades that followed, as the size of the nation’s economy – and with it the national debt – grew exponentially, the debt limit became a vestige of a bygone era. By 1974, it was truly obsolete; that year Congress passed a new law compelling it to approve a budget and thus set borrowing levels annually.

The implication by the Republicans that raising the ceiling will enable the government to spend the nation into bankruptcy all the faster is utterly phony, a pseudo-crisis rooted in no real problem, a fraud manufactured and then stage-managed by the GOP to frighten the public and score political points. Indeed, it is the Republican radicals, and not the Democrats, who are threatening to throw the government into immediate bankruptcy unless they get their way over other issues, above all defunding (which means, basically, repealing) Obamacare.

You don’t have to be Paul Krugman to understand all of this. Since the 1950s, economists have called the debt ceiling an experiment that failed long ago. Addressing Congress in 2003 as the chairman of the Federal Reserve Board, the Ayn Rand acolyte Alan Greenspan disparaged the debt ceiling as “either redundant or inconsistent with the paths of revenues and outlays you specify when you legislate a budget.” Eight years later, as the House Republicans threatened, Greenspan called the debt-limit problem “unnecessary” and said flat-out that the debt ceiling “serves no useful purpose.”

For decades, though, Congress went along with raising the debt limit as a mere formality. Every year from 1941 to 1945, Congress raised the debt ceiling to accommodate the accumulating costs of World War II. Since 1960, Congress has raised the ceiling 78 times, including 18 times under Ronald Reagan, six times under Bill Clinton, seven times under George W. Bush and seven times under Barack Obama. Occasionally members of both parties have voted against raising the ceiling as a symbolic gesture to focus attention on various issues. Indeed, in 2006, Sen. Barack Obama joined every other Democrat in the Senate in voting against raising the debt ceiling, a bit of political posturing that was part of the normal cut-and-thrust on Capitol Hill.

If the debt limit is not raised when necessary, the federal government will immediately default on some of its obligations. That, in turn, would disrupt its ability to pay its creditors, from bondholders and defense contractors to recipients of Social Security and Medicare. A default that lasted for just a single day – and perhaps even the threat of such a default – would have dire effects, causing every credit agency to downgrade the nation’s credit rating while presenting to the rest of the world a bizarre spectacle: the richest and most powerful nation on Earth willfully damaging both its economy and its international credibility. A default that lasted more than a few days would risk triggering a catastrophic financial crisis. Until now, no member of Congress, from either party, has seriously entertained wreaking such havoc. (Source: http://www.rollingstone.com/politics/news/republican-extremism-and-the-lessons-of-history-20131010page=2#ixzz2kvf0h61I)

Americans need to put pressure on their elected representatives to stop using the debt ceiling as a way to cripple government. Instead, public servants should propose ideas that appeal to the interests of the American people, and in turn, they will win elections.