‘Debt ceiling’ isn’t a debt ceiling
It’s unfortunate that our federal government has named its obligation to pay its debt the “debt ceiling.” It’s like a person calling their monthly credit card payment their debt limit.
The federal debt ceiling does nothing to hamper the federal governments ability to accrue debt. Congress can merrily go on piling up debt as fast as it wants to, with no regard to the “debt ceiling.”
When Congress passes bills that spend money, they seldom, if ever, designate funds to pay those expenditures. They turn the job of paying them over to the Treasury Department, which sells U.S. securities, such as savings bonds to get money to pay on those expenditures, but Congress then only authorizes the Treasury Department to sell a limited amount of those securities, never enough to actually cover the debt Congress has accrued. When it authorizes those securities, the amount that it authorizes is the “debt ceiling.”
If it were properly named, the “debt ceiling” would instead be called “The share of our debt we won’t leave for our children to pay.”
When the Treasury has paid as much debt each year as Congress has authorized it to pay, that is the “debt ceiling.”
Placing limits on what Treasury can pay does nothing to limit or contain the national debt. On the contrary, when Congress plays games as it is doing right now, the result is often to bring on an increase in the interest rate our government must pay on those securities in order to sell them.
Right now, it’s the GOP that is deceiving much of our citizenry with the claim they are trying to balance the budget by stopping some payment obligations, by limiting the amount Treasury can pay on our debt. It’s like a household budgeter saying, “Hey our electric bill is getting too high, from now on we will only pay 80% of what we owe in order to balance our budget.”
This isn’t just a GOP game. Both parties play it pretty much the same way, depending on who has the congressional majority. It is just so good to be able to tell their constituents that they have “lowered the debt ceiling.” It just sounds so good…
Denmark is the only other developed nation using this “debt ceiling” process, but it does it honestly and authorizes its debt ceiling based on its debt.
Other developed nations authorize paying in full each debt as it is authorized.
In other words, Treasury could be authorized to issue securities to cover each expenditure as the expenditure is authorized.
It’s like your household budget, if you make an expenditure, buy a car, you make sure you have the resources to pay for it, a loan from the bank in the amount of the price of the car, for instance. Then you make payments from your income. You buy a house the same way, and other major purchases.
The way our federal government works is similar in that it borrows the money to pay for its expenditures by selling U.S. securities(taking out loans) and then makes payments from its income (taxes).
However, unlike your household budget, Congress doesn’t match the amount of the expenditure and the repayment. It only authorizes securities to cover a portion of its expenditures, that portion is the fabled “debt ceiling.” The rest of the expenditures are set aside for future payment by posterity.
It’s a nice system for benefitting politicians and their cronies, not so good for posterity.