US Debt Ceiling

[Broken_Erika]

The U.S. debt limit is again stoking fears across the globe. Why not just scrap the thing?​

U.S. could be in default position by June 1​

With the U.S. government stoking global economic fears as it faces yet another standoff over raising the debt ceiling, some economic analysts and lawmakers are proposing a relatively simple solution to permanently resolve this issue:

Just scrap the thing.

"I don't think there's any reason to have it exist anymore," said Douglas Holtz-Eakin, former director of the Congressional Budget Office, who is the current president of the right-wing think-tank American Action Forum.

The biggest problem with the ceiling, said Holtz-Eakin and other observers, is that it has become so politicized, and a dangerous political bargaining chip that holds the economy hostage in order to extract political demands.

"Congress is increasingly willing to run with scissors on this," said Laura Blessing, a senior fellow at Georgetown University's Government Affairs Institute. "The best-case scenario, abolish the thing."

• U.S. could hit debt-ceiling crisis this summer unless deal is struck
• Analysis
  Biden state of the union uncorks high-stakes standoff over U.S. debt

A handful of Democratic lawmakers are trying to do that, and have co-sponsored the reintroduction of legislation calling for a repeal of the national debt ceiling.

"We should get rid of the debt ceiling. There's no other function than to let hostage-takers ply their trade," Massachusetts Sen. Elizabeth Warren told CBC News Tuesday.

Rhode Island Senator Sheldon Whitehouse, chair of the senate budget committee, said in a statement Tuesday that the threat of default "puts a very fine point on the need to get rid of this arbitrary mechanism that offers no benefits yet carries with it the power to deliver serious damage."

U.S. mostly an outlier​

Currently, U.S. President Joe Biden supports increasing the government's $31.4 trillion legal borrowing limit. But Republican House Speaker Kevin McCarthy and other GOP lawmakers want a deal that guarantees trillions of dollars in spending cuts before they sign on to raising the debt limit.

On Tuesday, congressional leaders from both parties met with Biden to address the issue, but little progress was made.

The debt ceiling is the government's borrowing limit that can only be raised through congressional authorization. That money, according to the U.S. Treasury Department, is needed for the government to meet its existing legal obligations, including social security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.

The U.S is mostly an outlier when it comes to setting such debt ceilings. Denmark also sets a debt ceiling, but as noted by Mrugank Bhusari, an assistant director with the Atlantic Council's GeoEconomics Center, the Danish government sets the ceiling so high that it will not be crossed, "rendering it no more than a formality."

A few other countries, including the European Union, have their debt ceiling set as a percentage of GDP (60 per cent in the case of the EU). But Bhusari notes that, unlike these other countries, the U.S. is "unique in its inability to find workarounds."

On Jan. 19, the U.S. federal government actually reached its limit on the amount of money it was authorized to borrow: $31.4 trillion. That prompted the U.S Treasury Department to use what they described as "extraordinary measures" to stave off a default — those measures included emergency changes to certain government accounts.

• U.S. taking 'extraordinary measures' to avoid default as debt ceiling hit
• U.S. central bank hikes rate but signals it may be done with them

But in a recent letter to McCarthy, Treasury Secretary Janet Yellen said that those measures could end as early as June 1, meaning the U.S., at that time, would be in default of its obligations.

Many economists have forecast dire economic consequences as a result of a default, which could include a credit rating downgrade, impact on borrowing, negative impact on the dollar, and potential havoc in the financial markets, with job losses in the thousands, if not millions — and all leading to a recession.

'Does exactly the opposite'​

Holtz-Eakin said that up until around the First World War, Congress would vote on every debt issue, which was unwieldy when trying to finance a war.

They enacted a debt limit so the Treasury Department could borrow when it needed, just underneath the limit. And when that limit needed to be raised, the department could consult with Congress, he said.

"Ironically, it was meant to make life easier for Treasury. And now it does exactly the opposite."

For decades, the vote to raise the debt limit has generally gone through without incident. But in 2011 that changed, as the House, under Republican control and influenced by the Tea Party, ran on a pledge to vote on every dollar spent, Holtz-Eakin said.

"The Republicans said, 'We're going to vote on every dime,' which meant they now had the votes for debt limit increase. Almost none of them wanted to do it," Holtz-Eakin said. "Then that partisanship slowly began to infect the Senate as well. And now we're at a position where it's become this real political hot potato."

Those who support keeping the debt limit will say that it forces Congress to "periodically look at itself in the mirror and say 'we're spending too much, let's get our act together,'" Hotlz-Eakin said.

"But I just don't believe that evidence suggests that's true."

'We should not be putting the U.S. economy hostage'​

Historically, the debt ceiling has not been a tool for fiscal restraint, said Blessing. It may have had some impact around the margins, but certainly nothing significant, she said.

"If you want to talk about meaningful fiscal restraint of a transformative nature, I cannot imagine a push, a statutory and/or procedural tool that is more ill-suited for that kind of a far-reaching and expertise-requiring exercise as the debt ceiling."

Instead, said Louise Sheiner, policy director for the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, the debt ceiling is used as a political threat.

"We should not be putting the U.S. economy hostage and we should not be putting the credibility of the U.S. government hostage like this," she said. "Not a good way of getting political leverage."

Although a handful of Democratic legislators may be pushing to scrap the ceiling, Blessing said she's not optimistic it would pass through. Biden himself, just last year, said the idea of scrapping the debt limit would be "irresponsible."

"It hasn't captured enough of a priority among political actors of both parties in the U.S," Blessing said. "[And] realistically, we see a number of politicians who think of themselves as fiscal hawks."

What are the alternatives?​

While abolishing the debt ceiling may not be in the cards, there have been other alternatives suggested to work around it.

In 2011, during a debt limit standoff, then-senate minority leader Mitch McConnell came up with a plan that would allow then-president Barack Obama to raise the debt limit. This would put the burden on the president, and allow it to pass through, as long as two-thirds of Congress didn't pass a resolution rejecting the president's request.

White House officials have also reportedly been looking at a clause in the 14th Amendment that potentially would allow the president to raise the limit, arguing it would be unconstitutional for the U.S. to not make good on its payment obligations.

• Analysis
  Could a trillion-dollar coin solve the U.S. debt ceiling crisis?

Finally, there's the trillion-dollar coin. The idea here is that the U.S. Mint could create $1-trillion coins, deposit them at the Federal Reserve, and the government could pay its debt obligations with those funds.

But many expert have problems with these other avenues to curtail the debt ceiling problem.

"I think they're gimmicky," said Holtz-Eakin "But I think they also run into the following substantive problem, and that is they will be perceived as Hail Mary passes of desperation by financial market participants, rating agencies, and they will impair the future credit of the United States."
https://www.cbc.ca/news/world/debt-ceiling-us-scrap-1.6836090

 

[RobAnybody]

I do not get the complaint about these being gimmicky. What is gimmicky about them that does not also apply to most institutions in the US, the electoral college being the prime example.

Are you saying we should keep the Debt Ceiling, even though it's gimmicky, simply because we have other gimmicky things? I'd prefer we get rid of all the gimmicky stuff, rather than justifying keeping one gimmick just because we have other gimmicks.

 

[Samson]

Are you saying we should keep the Debt Ceiling, even though it's gimmicky, simply because we have other gimmicky things? I'd prefer we get rid of all the gimmicky stuff, rather than justifying keeping one gimmick just because we have other gimmicks.

No, I am saying that I do not see why the gimmickyness should be relevant. Given that you have more gimmicky things, and we have things that are a 100 times more gimmicky and they are very far from the worst bit of our system.

You should get rid of the debt ceiling and the electoral college because they hurt more than they help.

 

[Kaitzilla]

The U.S. debt limit is again stoking fears across the globe. Why not just scrap the thing?​

U.S. could be in default position by June 1​

With the U.S. government stoking global economic fears as it faces yet another standoff over raising the debt ceiling, some economic analysts and lawmakers are proposing a relatively simple solution to permanently resolve this issue:

Just scrap the thing.

"I don't think there's any reason to have it exist anymore," said Douglas Holtz-Eakin, former director of the Congressional Budget Office, who is the current president of the right-wing think-tank American Action Forum.

The biggest problem with the ceiling, said Holtz-Eakin and other observers, is that it has become so politicized, and a dangerous political bargaining chip that holds the economy hostage in order to extract political demands.

"Congress is increasingly willing to run with scissors on this," said Laura Blessing, a senior fellow at Georgetown University's Government Affairs Institute. "The best-case scenario, abolish the thing."

• U.S. could hit debt-ceiling crisis this summer unless deal is struck
• Analysis
  Biden state of the union uncorks high-stakes standoff over U.S. debt

A handful of Democratic lawmakers are trying to do that, and have co-sponsored the reintroduction of legislation calling for a repeal of the national debt ceiling.

"We should get rid of the debt ceiling. There's no other function than to let hostage-takers ply their trade," Massachusetts Sen. Elizabeth Warren told CBC News Tuesday.

Rhode Island Senator Sheldon Whitehouse, chair of the senate budget committee, said in a statement Tuesday that the threat of default "puts a very fine point on the need to get rid of this arbitrary mechanism that offers no benefits yet carries with it the power to deliver serious damage."

U.S. mostly an outlier​

Currently, U.S. President Joe Biden supports increasing the government's $31.4 trillion legal borrowing limit. But Republican House Speaker Kevin McCarthy and other GOP lawmakers want a deal that guarantees trillions of dollars in spending cuts before they sign on to raising the debt limit.

On Tuesday, congressional leaders from both parties met with Biden to address the issue, but little progress was made.

The debt ceiling is the government's borrowing limit that can only be raised through congressional authorization. That money, according to the U.S. Treasury Department, is needed for the government to meet its existing legal obligations, including social security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.

The U.S is mostly an outlier when it comes to setting such debt ceilings. Denmark also sets a debt ceiling, but as noted by Mrugank Bhusari, an assistant director with the Atlantic Council's GeoEconomics Center, the Danish government sets the ceiling so high that it will not be crossed, "rendering it no more than a formality."

A few other countries, including the European Union, have their debt ceiling set as a percentage of GDP (60 per cent in the case of the EU). But Bhusari notes that, unlike these other countries, the U.S. is "unique in its inability to find workarounds."

On Jan. 19, the U.S. federal government actually reached its limit on the amount of money it was authorized to borrow: $31.4 trillion. That prompted the U.S Treasury Department to use what they described as "extraordinary measures" to stave off a default — those measures included emergency changes to certain government accounts.

• U.S. taking 'extraordinary measures' to avoid default as debt ceiling hit
• U.S. central bank hikes rate but signals it may be done with them

But in a recent letter to McCarthy, Treasury Secretary Janet Yellen said that those measures could end as early as June 1, meaning the U.S., at that time, would be in default of its obligations.

Many economists have forecast dire economic consequences as a result of a default, which could include a credit rating downgrade, impact on borrowing, negative impact on the dollar, and potential havoc in the financial markets, with job losses in the thousands, if not millions — and all leading to a recession.

'Does exactly the opposite'​

Holtz-Eakin said that up until around the First World War, Congress would vote on every debt issue, which was unwieldy when trying to finance a war.

They enacted a debt limit so the Treasury Department could borrow when it needed, just underneath the limit. And when that limit needed to be raised, the department could consult with Congress, he said.

"Ironically, it was meant to make life easier for Treasury. And now it does exactly the opposite."

For decades, the vote to raise the debt limit has generally gone through without incident. But in 2011 that changed, as the House, under Republican control and influenced by the Tea Party, ran on a pledge to vote on every dollar spent, Holtz-Eakin said.

"The Republicans said, 'We're going to vote on every dime,' which meant they now had the votes for debt limit increase. Almost none of them wanted to do it," Holtz-Eakin said. "Then that partisanship slowly began to infect the Senate as well. And now we're at a position where it's become this real political hot potato."

Those who support keeping the debt limit will say that it forces Congress to "periodically look at itself in the mirror and say 'we're spending too much, let's get our act together,'" Hotlz-Eakin said.

"But I just don't believe that evidence suggests that's true."

'We should not be putting the U.S. economy hostage'​

Historically, the debt ceiling has not been a tool for fiscal restraint, said Blessing. It may have had some impact around the margins, but certainly nothing significant, she said.

"If you want to talk about meaningful fiscal restraint of a transformative nature, I cannot imagine a push, a statutory and/or procedural tool that is more ill-suited for that kind of a far-reaching and expertise-requiring exercise as the debt ceiling."

Instead, said Louise Sheiner, policy director for the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, the debt ceiling is used as a political threat.

"We should not be putting the U.S. economy hostage and we should not be putting the credibility of the U.S. government hostage like this," she said. "Not a good way of getting political leverage."

Although a handful of Democratic legislators may be pushing to scrap the ceiling, Blessing said she's not optimistic it would pass through. Biden himself, just last year, said the idea of scrapping the debt limit would be "irresponsible."

"It hasn't captured enough of a priority among political actors of both parties in the U.S," Blessing said. "[And] realistically, we see a number of politicians who think of themselves as fiscal hawks."

What are the alternatives?​

While abolishing the debt ceiling may not be in the cards, there have been other alternatives suggested to work around it.

In 2011, during a debt limit standoff, then-senate minority leader Mitch McConnell came up with a plan that would allow then-president Barack Obama to raise the debt limit. This would put the burden on the president, and allow it to pass through, as long as two-thirds of Congress didn't pass a resolution rejecting the president's request.

White House officials have also reportedly been looking at a clause in the 14th Amendment that potentially would allow the president to raise the limit, arguing it would be unconstitutional for the U.S. to not make good on its payment obligations.

• Analysis
  Could a trillion-dollar coin solve the U.S. debt ceiling crisis?

Finally, there's the trillion-dollar coin. The idea here is that the U.S. Mint could create $1-trillion coins, deposit them at the Federal Reserve, and the government could pay its debt obligations with those funds.

But many expert have problems with these other avenues to curtail the debt ceiling problem.

"I think they're gimmicky," said Holtz-Eakin "But I think they also run into the following substantive problem, and that is they will be perceived as Hail Mary passes of desperation by financial market participants, rating agencies, and they will impair the future credit of the United States."
https://www.cbc.ca/news/world/debt-ceiling-us-scrap-1.6836090

Option 4, spend what we take in?

 

[Samson]

Option 4, spend what we take in?

That means either default on the debt (which may be unconstitutional?) or stop most federal spending.

 

[AdrienIer]

Option 4, spend what we take in?

I think what you meant is tax an appropriate amount to be able to spend what the state needs to spend ?

 

[Lexicus]

Option 4, spend what we take in?

Dumb idea

 

[Kaitzilla]

I think what you meant is tax an appropriate amount to be able to spend what the state needs to spend ?

Sure.

 

[Sommerswerd]

Option 4, spend what we take in?

I don't think this is possible, if I follow what you mean by this.

Our currency is fiat money of course, so it gets issued by the US Federal Reserve Bank and pretty much exclusively by the Federal Reserve Bank... but the Federal Reserve (Fed) is still a bank, so it issues all currency in the form of a loan, with interest. So every time the Fed "prints" money... all that really means, in practice, is that they loan money on behalf of the US to a smaller bank, with interest, which in turn, allows that smaller bank to issue loans of that money they received from the Fed, to other smaller banks, corporations, businesses, institutions, individuals, etc., with interest.

But the unavoidable consequence of this, is that the money must be paid back by the US, to the Fed, with interest, so the Fed ultimately has to get back all the money they lent out, plus more money on top of that, in order to pay the interest... But where does that extra money to pay the interest come from? It has to come from the Fed, because the Fed is the only source of US money...

But the Fed will only issue that extra money... in the form of a loan... with interest. In other words, it is essentially impossible for the US to only spend what it takes in. There is not enough US currency in circulation to pay back what is owed to the Fed, and there never can be, because the Fed only issues money in the form of a loan with interest and since the Fed is the only source of US currency, there can never be more money in circulation than what is owed back to the Fed including the interest. There is literally no way to have enough US currency to pay the Fed... the US monetary system has no choice but to continuously incur debt in order to pay the interest on the currency in circulation, because the currency in circulation has to be paid back to the Fed, with interest... interest that can only be generated by borrowing more money from the Fed. The system is designed that way... its a feature, not a bug and there is no other way to do it and no way out of it. Its kind of like a ponzi-scheme, the only way to pay off the old debt is by incurring new debt.

There is no way to "pay off" the national debt and there never will be. Generally speaking, all the national debt can ultimately do, is increase and increase and increase, unavoidably, forever. All the hand wringing over the national debt is just borne either out of ignorance, or dishonest fear-mongering for political/strategic reasons. The debt is just going to keep going up. That's what it is supposed to do.

 

[uppi]

There is no way to "pay off" the national debt and there never will be. Generally speaking, all the national debt can ultimately do, is increase and increase and increase, unavoidably, forever. All the hand wringing over the national debt is just borne either out of ignorance, or dishonest fear-mongering for political/strategic reasons. The debt is just going to keep going up. That's what it is supposed to do.

That is not true, because the new debt to pay off the old debt does not have to be national debt. It could be private debt as well (which could then be taxed to pay off the national debt). It would be a terrible idea, but technically, it would be possible.

 

[Birdjaguar]

That is not true, because the new debt to pay off the old debt does not have to be national debt. It could be private debt as well (which could then be taxed to pay off the national debt). It would be a terrible idea, but technically, it would be possible.

Hmmm... How would you tax private debt?

 

[uppi]

Hmmm... How would you tax private debt?

Not directly, of course. You would tax more than you spend with the difference being made up by increasing private sector debt

 

[Lexicus]

I don't think this is possible, if I follow what you mean by this.

Our currency is fiat money of course, so it gets issued by the US Federal Reserve Bank and pretty much exclusively by the Federal Reserve Bank... but the Federal Reserve (Fed) is still a bank, so it issues all currency in the form of a loan, with interest. So every time the Fed "prints" money... all that really means, in practice, is that they loan money on behalf of the US to a smaller bank, with interest, which in turn, allows that smaller bank to issue loans of that money they received from the Fed, to other smaller banks, corporations, businesses, institutions, individuals, etc., with interest.

But the unavoidable consequence of this, is that the money must be paid back by the US, to the Fed, with interest, so the Fed ultimately has to get back all the money they lent out, plus more money on top of that, in order to pay the interest... But where does that extra money to pay the interest come from? It has to come from the Fed, because the Fed is the only source of US money...

But the Fed will only issue that extra money... in the form of a loan... with interest. In other words, it is essentially impossible for the US to only spend what it takes in. There is not enough US currency in circulation to pay back what is owed to the Fed, and there never can be, because the Fed only issues money in the form of a loan with interest and since the Fed is the only source of US currency, there can never be more money in circulation than what is owed back to the Fed including the interest. There is literally no way to have enough US currency to pay the Fed... the US monetary system has no choice but to continuously incur debt in order to pay the interest on the currency in circulation, because the currency in circulation has to be paid back to the Fed, with interest... interest that can only be generated by borrowing more money from the Fed. The system is designed that way... its a feature, not a bug and there is no other way to do it and no way out of it. Its kind of like a ponzi-scheme, the only way to pay off the old debt is by incurring new debt.

There is no way to "pay off" the national debt and there never will be. Generally speaking, all the national debt can ultimately do, is increase and increase and increase, unavoidably, forever. All the hand wringing over the national debt is just borne either out of ignorance, or dishonest fear-mongering for political/strategic reasons. The debt is just going to keep going up. That's what it is supposed to do.

This isn't quite right but it's close to right. What you've got wrong is that the Treasury issues the dollar, not the Fed, and we could pay down the national debt by running surpluses until it was gone, but the national debt is simply the total amount of dollars in circulation in the world at any given time, so it's not practically possible to "repay the debt" due to any fancy things about interest repayment, repaying the debt would just contradict the purpose of a currency which is to have it circulate.

Remember, again, there is no ponzi scheme or anything similar at work here: the dollar is, fundamentally, a token that you use to pay taxes to the US government. That is the ultimate and fundamental reason for all its other uses and all its value. So the government has to spend more of its tokens into existence (that is another common point of confusion; there is no such thing as "taxpayer dollars" at the federal level, the Treasury spends dollars into existence and in the first instance the Treasury must spend dollars for there to be any tax payments back to the Treasury) than it takes in or there will be no dollars to circulate privately - we would pay back every dollar spent out into the economy as taxes. Back into the Treasury to be destroyed (don't believe me? Go pay your taxes with cash next year and ask the person what happens to that cash - they shred it).

All that said your conclusion is absolutely right! The fearmongering over the debt is from those who are economically illiterate, or more cynically just a political play - handwring about the debt when the other party is in power. Only (some of) the Democrats are dumb enough to handwring about the debt when their guy is in the White House; the Republicans have this part down pat.
But anyway you are also correct that paying down the debt is a practical impossibility as well. Every time we have tried to do it it has led to deep recession.

 

[uppi]

This isn't quite right but it's close to right. What you've got wrong is that the Treasury issues the dollar, not the Fed,

It is the Fed issuing almost all of the dollars. It says Federal Reserve Note right on the bills. If it was the Treasury issuing dollars, the debt ceiling would be a non-issue, because it could just create dollars to fund the government. This is why there is this talk about the trillion dollar coin, because minting is the only way the Treasury is allowed to issue dollars.

The Treasury could issue their own dollars, but that would be a major change of the monetary system and would require a law first.

 

[Lexicus]

It is the Fed issuing almost all of the dollars. It says Federal Reserve Note right on the bills. If it was the Treasury issuing dollars, the debt ceiling would be a non-issue, because it could just create dollars to fund the government. This is why there is this talk about the trillion dollar coin, because minting is the only way the Treasury is allowed to issue dollars.

The Treasury could issue their own dollars, but that would be a major change of the monetary system and would require a law first.

The Treasury does issue dollars. It creates dollars by spending them. That is the reality as it exists now; the notes might say "Federal Reserve" on them but they are printed by the Treasury and when you pay your taxes by mail you address it to the Treasury, not to the Fed (the Treasury also makes digital payments which of course account for many more dollars than the sum of all the paper notes in existence). The notes are also signed by the US Treasurer and Secretary of the Treasury, not the Chair of the Fed's Board.

The issue with the debt ceiling is that the Fed is required to issue bonds equalling the amount by which spending exceeds tax receipts; this is a legal/political requirement rather than a technical/operational one. The debt ceiling and the requirement for debt issuance equal to the amount of a deficit are both relics of when the money was specie and later when it was backed by gold; both requirements entirely counterproductive now.

 

[Sommerswerd]

The bottom line here, is that US currency is issued out of debt. It is debt. Every dollar in circulation, whether in cash or digitally, is essentially an IOU from the US and it says so right on the face of every bill. Our only source of US money is debt. So "paying it back" is a non sequitur. We can't, because then there would be no "money" left.

In fact, because of the fractional reserve system in banking, the notion of "paying it back/off" is even more absurd... because fractional reserve rules means that banks are actually allowed to loan out much more money than they actually have. So the money that is owed to banks exponentially exceeds by many times, the amount of money in circulation. There is no way that all the loans out there can be paid back. There simply is not enough currency in existence to do so and there never will be, because the system is designed that way.

 

[Lexicus]

The bottom line here, is that US currency is issued out of debt. It is debt. Every dollar in circulation, whether in cash or digitally, is essentially an IOU from the US and it says so right on the face of every bill. Our only source of US money is debt. So "paying it back" is a non sequitur. We can't, because then there would be no "money" left.

This is correct, yes. It is circular in the sense that what the thing owed is a tax liability; a dollar is an IOU from the gov't saying "I owe you one of these knocked off your tax bill."

In fact, because of the fractional reserve system in banking, the notion of "paying it back/off" is even more absurd... because fractional reserve rules means that banks are actually allowed to loan out much more money than they actually have. So the money that is owed to banks exponentially exceeds by many times, the amount of money in circulation. There is no way that all the loans out there can be paid back. There simply is not enough currency in existence to do so and there never will be, because the system is designed that way.

Just as the Treasury spends money into existence, a bank creates new money when it makes a loan.

 

[Gori the Grey]

The only solution to the debt-ceiling crisis that I oppose is the trillion dollar coin. I want it to be clear that I'm speaking as a non-economist, but here's why.

If Biden coins a trillion dollar coin, if Trump ever gets back in office, he will do so too. But then he'll claim that the coin is his, take it, and spend it on golden toilets at various rally sites throughout the country, so that he'll never have to s*** on anything but a golden toilet.

That will benefit only a small segment of the American economy: golden toilet manufacturers.

And there's not much trickle-down from that industry.

 

[Sommerswerd]

The issue with the debt ceiling is that the Fed is required to issue bonds equalling the amount by which spending exceeds tax receipts; this is a legal/political requirement rather than a technical/operational one. The debt ceiling and the requirement for debt issuance equal to the amount of a deficit are both relics of when the money was specie and later when the it was backed by gold; both are entirely counterproductive now.

This is a little but tricky right? The farce of money as a concept is based on trust/faith in the value. We know that if a country just outright starts "printing" money, ie issuing currency in an unregulated, unlimited manner, it collapses the value of the currency making it worthless. This has happened to other nations in the past, so that's not a controversial or theoretical thing. Part of it I guess would just be the basic supply-and-demand principle... demand exceeds supply, price/value goes up... supply exceeds demand, price/value goes down. If the supply is unlimited, the thing eventually becomes worthless.

So I think an argument for having a debt limit/ceiling is the notion that as long as our currency/debt is theoretically "limited", our currency maintains more stability in value. Once you remove any "limit", our debt/currency becomes unlimited, which could collapse the value. At least that's the argument for the debt "limit"... the reasonable one anyway. The other arguments, like "living within our means", "tightening our belts", "wasteful spending" etc., are just pure political fearmongering.

 

[Lexicus]

This is a little but tricky right? The farce of money as a concept is based on trust/faith in the value. We know that if a country just outright starts "printing" money, ie issuing currency in an unregulated, unlimited manner, it collapses the value of the currency making it worthless. This has happened to other nations in the past, so that's not a controversial or theoretical thing. Part of it I guess would just be the basic supply-and-demand principle... demand exceeds supply, price/value goes up... supply exceeds demand, price/value goes down. If the supply is unlimited, the thing eventually becomes worthless.

So I think an argument for having a debt limit/ceiling is the notion that as long as our currency/debt is theoretically "limited", our currency maintains more stability in value. Once you remove any "limit", our debt/currency becomes unlimited, which could collapse the value. At least that's the argument for the debt "limit"... the reasonable one anyway. The other arguments, like "living within our means", "tightening our belts", "wasteful spending" etc., are just pure political fearmongering.

Yeah, the value of fiat currency is based on the fact that you must pay taxes to a government or get in big trouble possibly up to and including going to jail. That is where the "scarcity" comes in - it's not scarcity per se but the fact that everyone knows they need some dollars to pay their taxes (I know not everyone is a net federal taxpayer but those people still pay all kinds of taxes).

It is true that governments that spend "too much" (and too much is not some arbitrary value, what level of spending is excessive depends on the other two terms in the macro accounting equation and crucially on what one's politics are but we don't need to get into that now) run into trouble. But the debt ceiling does nothing to limit the amount of spending Congress appropriates.

The debt ceiling originally was a replacement for the older system where Congress held a vote on each individual debt issue; when the US entered world war I they replaced this system with the debt ceiling, the idea being that this would enable deficit spending much more efficiently since the Treasury could issue as many bonds as necessary to fund spending up to the debt ceiling limit.

Of course, these systems go back to when money was not merely "backed by" gold but was understood to be synonymous with gold. The dollar is no longer tied to gold even notionally. All this is to say there is no case, sensible or otherwise, for keeping the debt ceiling today. The problem is that our "fiscal hawks" have a whole audience of economic illiterate people who like to hear them say economically illiterate things. Any idea of the government "living within its means" is economically illiterate. Any talk about the debt "imposing a burden on our children" is economically illiterate. And so on. You are correct to call them fearmongering because they are a smokescreen; " we can't afford x" is a way of saying "i don't want the government to do x" that doesn't make you look like a callous jerk when "x" is funding healthcare for children in poverty or making sure no child in the US is drinking lead with their tap water or...you get the idea.