Economic devastation and political collapse — a familiar headline on the events following a default on government debt when Congress does not raise the debt ceiling, stressing the American public several times a year. Raising the debt ceiling is a familiar ritual on Capitol Hill, with Congress raising or temporarily suspending the limit of debt 78 separate times since 1960. However, debt raising is never without political melodramatics. In September, the Senate blocked a temporary suspension of the debt limit, threatening a government shutdown and economic consequences, and not until after negotiation could the limit be increased by $430 billion in October.
When policy demands more funding than government revenue, the government borrows money and increases its debt by administering Treasury bonds and securities to make up the deficit. The debt is stored in a loan the government must pay back with a guaranteed fixed return over some amount of time. But nearly half of the total debt is owned by the Federal Reserve, federal accounts, or state and local governments, according to the Treasury. That is, nearly half the amount of current debt the government is owed to itself, while the rest is owed to domestic and international investors.
The most recent debt limit increase only serves as a provisional solution. According to a letter to Congress from the Secretary of the Treasury, Janet Yellen, it is projected the new ceiling will only last until Dec. 3, giving a lethargic Congress little time to settle its disagreements over government expenditures. The Treasury Department is expecting to borrow over $1 trillion this quarter, second only to the $2.75 trillion borrowing in March 2020 in urgent response to COVID-19.
Once the debt limit is reached, the Treasury will turn to “extraordinary measures,” Secretary Yellen said. Financially supporting of the federal government until internal reserves are exhausted will lead to “irreparable damage to the U.S. economy and global financial markets.” By reaching the debt ceiling, a default on U.S. debt is a completely unnecessary cataclysm caused only by an unproductive Congress. Debt must be permanently addressed. As Yellen argues, control of the debt ceiling should be removed from Congress altogether. Congress should only have its decision in government spending and taxes, while the power to issue additional debt to fund congressional programs should be moved elsewhere. The debt ceiling is only “a tool for political advantage,” as former Treasury Secretary Timothy Geithner stated, and counterintuitively threatens the welfare of American citizens. The sole function of a debt ceiling has no real impact on government spending, as the ceiling will be raised regardless—a proven facade and device for political antics.
The damages of the legislative debt limit outweigh the need to continue its enforcement. The ceiling must be abolished. Though this concept may bring strong speculation and accost to its sustainability, removing the debt ceiling is the most legitimate option to deal with the potential threat against the American public opposed to the current debt policy. One might assume that without a debt ceiling, the U.S. will sink even faster into debt thanks to relentless government spending and the printing of money. However, this is built on a misunderstanding of debt and government borrowing and revolves around the false prejudices against the word ‘debt’ when speaking about federal debt.
Currently, the U.S. has the enormous privilege of borrowing large sums of money sustainably. Interest on issued bonds is very low, yielding a $100 investment only $2 over 30 years — the lowest bond return in history. The low interest rate indicates the high incentive to lend the U.S. money when borrowing is required. In a time like a recession, it is preferrable to invest into a Treasury asset as opposed to a private asset due to market instability. International and private entities want to put their investments in the U.S. because of the strength and resilience of the USD. With these factors in mind, even though debt is accumulating, money is confidently being given to the U.S. As long as the U.S. maintains its economic strength and growth, the debt the government owes effectively has no real economic consequences. Even though someone like Senator Rick Scott will fearmonger with intimidating numbers saying on Fox News, “I’m not going to bankrupt this country. This country has almost $30 trillion worth of debt and that bill by itself was a quarter of a trillion dollars of debt. This has got to end,” the current debt-to-GDP ratio is fairly normal compared to the ratio other countries maintain, as well our historical debt-to-GDP ratios.
As long as inflation and spending are well-controlled, government debt is a nominal feature rather than holding any concerning implications. Because of the little risk in government borrowing and the volumes of money within the U.S. economy, there is little risk of perpetuating debt given conscientiousness policy spending and borrowing. Deficit spending has been the norm over the past 50 years and has proven sustainable so far. Though many recoil at the concept of government spending, it is most often a useful fiscal policy when attempting to maintain economic growth and stability. A price ceiling in Congress has proven superfluous and irrelevant to spending powers. Congress ought to only be concerned with its only policy decisions — not leveraging our own wellbeing and livelihood to spite political opposition.