Brace Yourself for Another “Debt Ceiling” Fight
Here we go again.
The clock is ticking down to another US debt ceiling battle.
The Congressional Budget Office projects Uncle Sam will run out of money this fall, likely in October or November. “If that occurred, the government would be unable to pay its obligations fully, and it would delay making payments for its activities, default on its debt obligations, or both,” the CBO said in a statement.
In 2019, Congress suspended the debt limit for two years. That suspension ends on July 31.
Congress imposed the first debt ceiling in 1917. The Second Liberty Bond Act capped debt at $11.5 billion. This was supposed to put some kind of restraint on government borrowing. Of course, it didn’t. Every time the debt approaches the ceiling, Congress simply raises it. Between 1962 and 2011, lawmakers jacked up the debt “limit” 74 times, according to the Congressional Research Service.
In 2013, Congress came up with a new trick. Instead of raising the debt ceiling, it just suspended it. Congress set the last actual debt limit in 2014 with a built-in “auto-adjust.” The auto-adjust ended in March 2015 with the debt ceiling set at $18.1 trillion. Since then, Congress has suspended the debt ceiling three times.
As of July 20, the national debt stood at $28.49 trillion.
When the current debt ceiling suspension ends on July 31, the US government will no longer be able to borrow money. According to the CBO, it will be able to limp along until this fall using “extraordinary measures.” According to Reuters, these range from halting the issuance of special securities to state and local governments to suspending the daily reinvestment of Treasury securities held by a government employee retirement fund and the Treasury’s Exchange Stabilization Fund.
It’s not completely clear how long the government can get by with accounting gimmicks. The CBO said it will depend on actual revenue collection and government spending, which can differ significantly from projections.
Given that the debt ceiling has never meaningfully restrained borrowing and spending, why doesn’t Congress just scrap it altogether?
I think there are two reasons.
First, doing away with the debt ceiling would expose America’s fiscal irresponsibility to the world. We all know the federal government has a spending problem. But the debt ceiling creates the illusion of responsibility. It’s like a magic trick. We all know it’s not really magic. It’s an illusion created by the magician. But we like to believe it’s magic. It makes us feel good. The debt ceiling is an illusion that allows Americans to feel like their “representatives” are acting responsibly.
Second, the debt ceiling is ready-made for political theater. And there’s nothing politicians love more than political theater.
Senate Minority Leader Mitch McConnell has already indicated that the Republicans aren’t going to vote for a debt ceiling increase because of the Democrats’ wild spending spree that he called a “free-for-all for taxes and spending.”
“I can’t imagine there will be a single Republican voting to raise the debt ceiling after what we’ve been experiencing,” McConnell said.
It’s also a nice tool Republicans can use to get what they want out of the infrastructure deal Congress is currently haggling over.
Of course, this is all rank hypocrisy. The Republicans borrowed and spent like drunken sailors during the Trump years and they approved the last debt ceiling suspension. Even today, Republicans aren’t opposing the infrastructure bill. They just want it to be their kind of infrastructure bill.
Senate Majority Leader Chuck Schumer called McConnell’s remarks “shameless, cynical and totally political.” Because we all know the Democrats are just trying to do what’s best for America. No political motivation there at all!
Failure to raise the debt limit would have “catastrophic economic consequences,” as Treasury Secretary Janet Yellen put it.
It would be utterly unprecedented in American history for the United States government to default on its legal obligations.”
Yellen’s not wrong. And this is exactly why Congress will raise the debt ceiling – or simply kick the can down the road by suspending it again.
In the meantime, brace yourself for hot political rhetoric and a lot of finger-pointing across the political aisle. We may even get another mythical government shutdown. But trust me, they won’t shut down any of the important things. The NSA will keep spying on you. The IRS will continue to collect taxes from you. The wars will rage on. And members of Congress will continue to collect their paychecks. There’s always money available for the things the government really wants to do.
The whole debt ceiling debate is nothing but political gamesmanship. So, grab a chair. Pop some popcorn. And enjoy the show.