The debt ceiling is the limit the US government can borrow to pay for its operations.
The debt ceiling was instituted to make it easier for the Treasury to borrow money to pay for budgeted items, but Congress often overspends, forcing the Treasury to borrow more.
The government has been spending well above its means for decades, forcing it to borrow money through the issuance of bonds.
Political brinkmanship often comes into play during debt ceiling negotiations, putting the nation's ability to pay its bills at risk.
Requiring a balanced budget instead of the debt ceiling could fix the runaway deficit spending that makes up Congress’ budgetary process and return the power of the purse to Congress.
A Four-Star Meal You Can't Afford:
Imagine this: you have a credit-building credit card. You control how much credit you have based on the amount of money you put into it. Now imagine that you went to a restaurant and ordered an amazing four-star meal. It's time to pay your bill, but your credit-building credit card has a limit that is much lower than the amount you owe. You could add money to the card and increase your credit limit, or you could choose not to pay your bill and risk ruining your reputation. If you don't pay, you'll still have to pay the bill with interest, which means you'll end up paying more than the original bill.
Yes, there is a hole in that scenario: if you have the money to add to your card, why not pay your bill with the cash you have instead of borrowing more and putting yourself into further debt? It is a valid argument. For the sake of this discussion, let's accept that paying with your own money is not an option. You can either increase the amount you can borrow, or you don't pay your bill.
The Debt Ceiling: America’s Credit limit:
The debt ceiling is the limit the United States Government can borrow to pay for the cost of running a nation. The problem is that our government has been spending well above its means for decades. The revenue it brings in from taxes doesn't come close to being able to pay bills. So, in order to cover all the costs, our government borrows money through the issuance of bonds. These bonds are set with specific time frames and are purchased by everyone from everyday Americans to countries all over the world. The government has been borrowing money at such a rate that it frequently hits the limit it can borrow that has been set by Congress, and only Congress can authorize an increase in that limit.
The scenario I opened with is similar, albeit oversimplified, to the current situation with the debt ceiling fight that occurs every year or so in Washington, D.C. Depending on who is in charge at the time defines how the debt ceiling gets raised. Sometimes Congress adds money to their credit-building credit card and allows the US to easily pay its bills. Other times, Congress acts against its own best interest and uses the need for a debt ceiling hike as a political tool, holding our nation's ability to pay its bills hostage to exact a political win from the opposing party.
What Happens When the US Defaults on Its National Debt?
The bill that needs to be paid is the national debt, or money that has already been spent or promised in return for a service. In the scenario, the service is the four-star meal. If the government doesn't raise the borrowing limit, it will not be able to raise more money to pay the bill.
In a worst-case scenario, defaulting on the national debt means that the United States will cease to be seen as a trustworthy investment. Interest rates on the national debt will increase, and the nations of the world will seek a more stable economy to invest in. At home, prices will skyrocket, the stock market will crash, businesses will fail, and thousands of Americans will lose their jobs, their retirement, and their homes because of the default.
The Debt Ceiling: History and Misconceptions:
So why do we have a debt ceiling? Who in their right mind would place a limit on the amount of money the government can borrow, knowing that if the government doesn't borrow, it will be unable to pay its bills?
I will start with what the debt ceiling is not:
It is not a tool to control and limit spending. Quite the contrary, it was set in place to make it easier for the Treasury to borrow money to pay for the things that have been budgeted for by Congress. The issue here is that Congress tends to not consider the income when they make their budget, forcing the Treasury to borrow money.
It is not a partisan issue. Even though Republicans are vocal about not wanting to raise the debt ceiling this time, the party opposing the debt limit is usually determined by who is serving as the President. When a Republican is in the Oval Office, Democrats denounce raising the debt limit, and when a Democrat is in office, well, you get the picture.
Hitting the debt ceiling would not be as bad as the media is making it seem. Unfortunately, the reality is that, despite the worst-case scenario I mentioned above, no one really knows entirely what will happen if the debt ceiling is breached. What is known is that paychecks to those on social security and veteran's benefits will be significantly delayed. The cost of borrowing money will significantly increase, meaning that coupled together with the constant overspending by Congress, the deficit will continue to increase.
According to an article from Time, the debt ceiling was instituted as a means of giving the US Treasury the ability to borrow money without requiring a constant need to go to Congress for approval every time the Treasury needed to borrow money. It was intended to be a solution to a problem, specifically to allow the United States to quickly respond to the need to fund its involvement in World War I.
I could bore you with the details and history, but suffice it to say: the debt ceiling has been raised by Congress as needed in order to ensure funding for governmental operations, except for 1946 when it was decreased following World War II and military costs associated with the war dropped off and the following eight years, during which the federal government ran a surplus for three years in a row.
Deficit Spending and Political Brinkmanship: The Root Causes of US Debt Ceiling Crises
According to the Bipartisan Policy Center, the United States government operated on a balanced budget and successfully managed to have a budget surplus each year from 1997 to 2002. During that time, there was no need to increase the limit. However, the government returned to deficit spending and increased the debt limit to $6.4 billion in June of 2002. The Time article I mentioned earlier found that the federal government has spent roughly $1 trillion more every year from 2002 to present than it was taking in from tax revenue.
In 2011, the government neared a point at which it was set to hit the debt ceiling, which had by then reached $14.3 trillion. The fight between a Republican-dominated Congress and a Democrat Executive branch brought the nation to the brink of default by two days. As a result, the United States perfect credit rating was downgraded from AAA to AA+. Today, the debt ceiling is set at $31.4 trillion, and that ceiling is expected to be breached sometime in early June 2023.
If this happens, as I have stated above, no one truly knows exactly what will happen. What is known is that the default will likely trigger a full government shutdown. This is different from the partial shutdowns we have experienced in the past, largely because partial shutdowns are the result of Congress not being able to pass a budget. In a partial shutdown, important known budgetary items, like the military, social security, and veterans' benefits, continue to be funded, while items requiring discretionary funding like government contract workers and government employees will lose funding and will not be functional. In a full shutdown, everything gets turned off because there is no funding left for the Treasury to spend.
Political Brinkmanship: Playing a Game of Chicken with America’s future:
I have worked hard to avoid mentioning the elephant in the Congressional building, but the fact of the matter is that we are on the brink of a default because of political brinkmanship. It is because neither side is truly willing to sit down and talk that our nation is staring into the unknown. In the last two decades, Republicans and Democrats have both increased the partisan divide. Each side exacting revenge on the other as soon as they have the power to do so. If the limit is raised in time, and if our nation continues to become more and more politically polarized, this will happen again, and we will go over the cliff.
Political brinkmanship, the need to exact political gains over something that the government truly needs, will destroy this nation from the inside out. This is why Crayon Box Politics exists, this is why Americans need to take more notice of what is going on in our government. If our politicians are not truly held accountable, they will continue to act and vote in their own best interest. They will continue to gamble with the future of our nation just to keep their jobs and gain political, and fiscal, advantage.
Balanced Budget Instead of Debt Ceiling: A Call for Fiscal Responsibility in Congress
It is my belief that Congress needs to replace the debt ceiling with a requirement for a balanced budget. If the American people can't spend outside their means, then their government should not be allowed to either. This move would likely result in an increase in taxation among many other unknown consequences. However, a balanced budget approach would fix the runaway deficit spending that makes up Congress’ budgetary process. We would go back to the days in which the Treasury department would have to gain Congressional approval each time it needed to borrow money and would truly return the power of the purse to Congress where it belongs. In the end, the only true way to fix the system is to have both parties sit down and negotiate through open, honest, and respectful communication.
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