Raising the Debt Limit: It Just Makes Sense. Not.

Some say the world will end in fire and some say in ice.

But in Washington, a lot of people say it will end if we don’t continually raise the debt ceiling.

The statutory debt limit, or debt ceiling, represents the maximum amount of debt the federal government can carry at any given time. The limit was created in 1917 so that Congress wouldn’t have to vote every time the government wanted to increase the amount of debt (which was becoming a more and more frequent occasion). Since then, the Treasury Department has had the authority to issue new debt up to whatever the limit is to fund government needs. Last year, the limit was raised to $14.3 trillion, an amount that is about to reached.

As it approaches, Federal Reserve Chairman Ben Bernanke has said failing to raise the limit would likely mean the U.S. would default on its debt, creating “real chaos” in place of the fake chaos that’s out there now. Treasury Secretary Timothy Geithner has said that failing to raise the limit would be “deeply irresponsible” and and Austan Goolsbee, President Obama’s chief economic adviser, has said that not raising the limit would create “the first default in history caused purely by insanity.”

Eh, maybe.

As Reason columnist and Mercatus Center economist Veronique de Rugy, has pointed out, we’ve maxed out the nation’s credit card in the past without such dire results. In the mid-1980s, the mid-1990s, and in 2002, for instance, the debt limit wasn’t raised for months at a time and the government got along just swell. The government has a big bag of tools it can use, ranging from playing around with the amount of spending that is liable to the limit to prioritizing interest and debt payments over other outlays. Interest on the debt for this year is projected to be about $225 billion and government revenue is expected to be around $2.2 trillion, so the government can easily pay the vig and avoid defaulting.

What it shouldn’t do is simply keep piling on the debt. The limit has been raised no fewer than 10 times in the past decade. When Republicans ran the White House and the Congress, they voted overwhelmingly to charge it and Democrats, including Sen. Obama, hollered bloody murder. In 2006, he called the need to yet again increase the debt limit “a sign of leadership failure.” Now that Dems run the show, the GOP has suddenly rediscovered its inner cheapskate.

So it goes. 

The boldest plan to rein in spending and debt comes from newcomer Sen. Mike Lee (R-Utah), a Tea Party favorite who dispatched Republican incumbent Bob Bennett in the primaries before coasting to victory in the general election last fall. Lee has vowed to block passage of a debt-limit increase unless Congress signs on to his balanced-budget amendment which would cap annual federal spending at 18 percent of Gross Domestic Product (GDP). The amendment would require a super-majority of two-thirds in the Senate and House of Representatives. Lee’s bill is competing with another Republican proposal from Sens. Hatch (Utah) and Cornyn (Texas) to cap spending at 20 percent of GDP. The Hatch-Cornyn bill has weaker rules on its higher cap as well.

In 2010, spending came to about 24 percent of GDP and it’s expected to come in around 25 percent of GDP in 2011. Since 1950, total federal revenues have averaged 17.8 percent and have reached higher than 20 percent exactly once. Spending over the same time has averaged just under 20 percent.

Whether Lee’s proposal carries the day – and there’s a strong case that its passage would do more to calm financial markets than simply bumping up the federal credit line – neither the Democratic nor the Republican leadership has yet to advance a serious proposal to cut spending and reduce outstanding debt. Indeed, both the president's budget proposal for 2012 and the generally non-existent Republican response are not only deeply irresponsible but clear signs of insanity.

That ain't right. But it does help explain why a government that has increased spending over 62 percent in real dollars can no longer get by on a $14 trillion debt ceiling.

Video written and produced by Austin Bragg; article text written by Nick Gillespie.

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  • ||

    It was theater when it was introduced, it is theater now.

    Why to they bother?

  • Almanian||

    I have to give Canada credit - at least they've actually taken on their debt issues to some extent. Which I NEVER thought would happen.

    The US, on the other hand? What, ME worry?

    /Alfred E. Neuman

  • ||

    Canada had to really hit bottom before they did anything about it. Fortunately for Canada it always had the US to pull it out of its debt induced doldrums. The US doesn't have any large neighbor beside it to carry it.

    Politics is killing the US economy. That and an incompetent president.

  • ||

    'Cause some of us fall for it every. . .single. . .time.

  • Tony||

    In 2006 we didn't have 10% unemployment. Yes Republican fiscal hypocrisy and duplicity is cute in normal times, but their hysterical blathering about debt will only result in policies that will do nothing for employment and won't actually make any deficits whole. If I wasn't almost convinced most of them are actually stupid enough to believe the crank bullshit they espouse, I'd think they almost didn't want employment to get better prior to 2012.

  • Almanian||

    Because more national debt always reduces unemployment, right? Like Obamulus the last two years has reduced unemployment, right?

    RIGHT?

  • Tony||

    Actually, yes. If it weren't for stimulus policies, you tell me why the recession ended as quickly as it did.

  • Almanian||

    HAHAHAHAHAHAHA! Ended! Good one! And unemployment is....what percentage again?

  • Tony||

    9.8%. What would it have been with no government intervention? Less?

  • ||

    Possibly. What stimulus money giveth, the simultaneous explosion of regulation taketh away.

  • sevo||

    Tony|3.1.11 @ 5:53PM|#
    "9.8%. What would it have been with no government intervention? Less?"

    You're making the claims; let's see the proof.

  • nekoxgirl||

    According to Obama the stimulus was suppose to stop unemployment rates from going up to 9 to 10%. Yet here we are today, unemployment stuck at exactly those numbers. But we still can't call the stimulus a failure? Move goal posts much?

  • Realist||

    It was suppose to stop at 8%....but that's what you get for listening to a sack of shit with big ears.

  • Vermont Gun Owner||

    And this recession is "ended so quickly". Despite being clearly shown to be one of the longest on record.

  • Tony||

    Who cares what Obama predicted? Is this like a game to you?

  • Red Rocks Rockin||

    Who cares what Obama predicted? Is this like a game to you?

    Do you really think Obama would have touted it as a job saving measure if he had said, "Look, the U3 is going to go above 9% and stay there for a long damn time no matter what we do"?

    What he shouldn't have done is let his mouth write a check reality wouldn't cash.

  • JoshINHB||

    What he shouldn't have done is let his mouth write a check reality wouldn't cash.

    When all you have is a hammer...

  • ||

    Tony...believe it or not there is lots of evidence to prove that stimulus spending does not work.

    Prices were too high to be sustained. This was caused by a debt explosion. The solution is not to have more debt. It is to let prices fall as quickly as possible, until such time as they are back in line with what is affordable. Trying to artificially prop up house prices just keeps the problem going.

    Canada had to get its house in order, and it tried to avoid it for decades, nearly destroying its economy in the process. The US is doing the same thing now. Businesses or economies can't be artificially propped up. You either make a product that a willing customer can afford to pay, or you don't, and then you go broke.

    Everyone is blaming and pointing fingers. The fact is let prices fall. The faster and harder the better, if you want the economy to start moving again. Dragging it out by false measures means the bad times goes on for years and years.

    Look at other countries records on this. Eventually, they bite the bullet and do the conservative thing. Then, things straighten out.

  • ||

    By the way, the Repubs are not doing the correct thing either. Neither party is. The budget has to be balanced. Not argue as to whether $30 billion should be shaved off, or $100 billion cut off a $1.6 trillion deficit.

    What do you think when you read about Greece? What is the solution? The solution is Greece needs to go through a massive and painful restructuring. That will have to happen in the States too. The sooner the better, because if you think the pain will be too great now, it will be many times that in 5 to 10 years.

  • Colonel_Angus||

    Stimulus policies didn't stimulate anything except keynesian dick.

  • sevo||

    Tony|3.1.11 @ 5:16PM|#
    "Actually, yes. If it weren't for stimulus policies, you tell me why the recession ended as quickly as it did."

    No, you tell us why you fantasize the stimulus had anything to do with ending the recession.
    Sorry; you claimed it, you prove it.

  • Tony||

    It was either the stimulus or something from the alternate universe you people inhabit wherein the recession was mild when convenient, deep when convenient, and all facts are optional, depending on what fits into your worldview.

  • Red Rocks Rockin||

    According to Tony, a 9% U3, 1/5 of the country on food stamps, and long-term unemployment greater than 40% for months is "ending the recession."

    Tell us, Tony, you math-challenged fool, if the recession is over, why is the employment rate of the population double-dipping?
    http://www.market-ticker.org/a.....st=2345486

  • DNS||

    most of them are actually stupid enough to believe the crank bullshit they espouse

    Speaking of this, you're needed on the eminent domain thread.

  • ||

    But Tony, we shouldn't have 10% unemployment. I seem to recall some promises made a couple of years ago that the stimulus would prevent that. Explain to me again why I should let the same kiddies continue to play with my fiscal future by raising my portion of the U.S' debt.

  • Tony||

    While it's hard to compare reality to a counterfactual, it's likely that unemployment would be much worse without the government intervention. A lot of the stimulus money is going away, so we better hope the economy get grow on its own enough to take care of the employment crisis. Which is the actual crisis you should care about, not the debt, which will never be solved anyway as long as we have high unemployment and sharply reduced government revenues. Why do you care about debt all of a sudden? What is the magical line between acceptable debt in a recession and too much? I have a sneaking suspicion the line is Jan. 20, 2009.

  • Jim||

    I actually did write a letter to my congresscritter (Sam Johnson) before your (sadly correct) cut-off date of when debt suddenly became bad, ordering him, as his salary-paying boss (i.e. taxpayer), not to vote for the damned bailout. He was nice enough to send me a form letter in response.

    Tell you what, I'll make you a deal: if Obama loses in 2012 (or republicans get a large majority in congress) and we all of a sudden start falling all over ourselves to excuse their spending, I'll owe you a coke. If we continue to hammer the hypocrites when they suddenly forget about real discipline, you'll send me $50. The disparity in payments is to compensate for your certainty of victory, since you believe we're mostly just Team Red props.

  • Tony||

    My contention is that to be concerned about debt above all else is to be a Republican prop. It's their obsession, and, like all Republican obsessions, it's suffused with cynical partisan concerns.

  • nekoxgirl||

    I cared about the debt when I was a Democrat...that's probably one of the reasons I am not a Democrat anymore.

  • Tony||

    I care about the debt too. I just care about unemployment and the fact that our country is going to become 3rd rate soon more. That's one reason to be scared of debt. It's paying for social, economic, and technological advancement in China. But to be concerned about debt above our vast levels of unemployment, poverty, and ignorance, is to care about none of these things at all.

  • Red Rocks Rockin||

    Sorry Tony--the choice is limited.

    Take a little pain now or see the whole thing blow up in our face later.

    I can certainly see which side you prefer, despite your objections.

  • ||

    Tony...Red Rocks is right.

    Every country ever that has gone down the route the US is now has hugely regretted it. And, when the economy is really messed because of government debt unemployment is way higher. And, then it is really intractable.

  • ||

    Reason was inveighing against spending during the Bush years too. You were here during the TARP fiasco so you should know that.

  • Tony||

    TARP's problem was that it was a ceding of authority to the private institutions at fault for the crisis, but it did maintain a stable status quo, which is better than one alternative I can think of. What about Bush's other, much more pointless and destructive, spending crimes? I can only assume they were equally hysterical about his debt explosion, except perhaps the portion of it caused by tax cuts to billionaires.

  • JoshINHB||

    TARP's problem was that it was a ceding of authority to the private institutions at fault for the crisis, but it did maintain a stable status quo

  • ||

    Now that whole reply to my question is a dodge. Obama and company argued that unemployment would stay below 8% if the stimulus was passed. They were wrong. Are they using a different crystal ball now? Why should I trust them on this? How the fuck do you know how long I've been concerned about the national debt?

  • Vermont Gun Owner||

    Shorter Tony:

    "It's impossible to know what would have happened! So we must have made it better!"

    *Continue ignoring the 8% prediction*

  • ||

    Debt causes unemployment. Do a little research on this. What you're writing sounds like it is the good and correct response, but it isn't. Look at what Canada went through. We had massive debt with 60% of the country saying 'look, no problem, debt is good, it helps with unemployment'. Until such time as 55% of every dollar made went to a level of government, and still the government was running larger and larger debt loads.

    Socialist policies don't work. Maybe they can, but no one yet has written an algorithm that stands the test. Doing the 'nice' thing, giving people great pensions and benefits, and all the rest, only work if the person is generating a ton of revenue. If they don't, or haven't been, ultimately the system can't be sustained.

  • Pip||

    Go suck a diseased cock, Tony.

  • ||

    Hey, it's Tony. How ya doin', Tony?

  • Tony||

    I think I'm getting a cold, thank you for asking.

  • Fist of Etiquette||

    Who authored this post? And what are they hiding? That's what I would like to know.

  • DNS||

    Who authored this post?

    KOCHTOPUS! The tentacles of this kraken loom far and wide.

  • max hats||

    I understand no one wanting to sign their name to something so fucking retarded.

  • Fist of Etiquette||

    Video written and produced by Austin Bragg; article text written by Nick Gillespie.

    Now who's "retarded"? Yeah.

  • max hats||

    As soon as I saw the title, I knew it was Gillespie. Like his wardrobe, his wording comes from a time capsule of happily-forgotten trends. Unsurprising he was too dumb to figure out how to change the author field and instead left it blank.

    And no, I don't feel bad in the least for not reading the whole thing.

  • Warty||

    I'll just take out some more loans and go down to the racetrack.

  • BakedPenguin||

    Awesome album...

  • Thread Jack||

    Eric Holder: Black Panther case focus demeans 'my people'
    Attorney General Eric Holder finally got fed up Tuesday with claims that the Justice Department went easy in a voting rights case against members of the New Black Panther Party because they are African American.

    Holder's frustration over the criticism became evident during a House Appropriations subcommittee hearing as Rep. John Culberson (R-Texas) accused the Justice Department of failing to cooperate with a Civil Rights Commission investigation into the handling of the 2008 incident in which Black Panthers in intimidating outfits and wielding a club stood outside a polling place in Philadelphia.

    The Attorney General seemed to take personal offense at a comment Culberson read in which former Democratic activist Bartle Bull called the incident the most serious act of voter intimidation he had witnessed in his career.

    "Think about that," Holder said. "When you compare what people endured in the South in the 60s to try to get the right to vote for African Americans, to compare what people subjected to that with what happened in Philadelphia, which was inappropriate....to describe it in those terms I think does a great disservice to people who put their lives on the line for my people," said Holder, who is black.

    http://www.politico.com/blogs/.....eople.html

  • ||

    The mask comes off. Civil rights laws are for the sole benefit of Holder's peeps. If you're not an African-American of the Democratic persuasion, you needn't concern yourself.

  • Almanian||

    "My People" - so, left-wing, statist fucks? Got it.

  • ||

    Bull called the incident the 'most serious....' he had witnessed in his career.

    He didn't say it was the most serious in history, just what he had witnessed. How can anyone be upset with that? It could very well be the most serious thing he had ever personally witnessed.

  • ||

    I just read the full Bull quote. Here it is:

    "would qualify as the most blatant form of voter intimidation I have encountered in my life in political campaigns in many states, even going back to the work I did in Mississippi in the 1960s."

    Holder's comment more or less said that was ridiculous. Which it is, if Bull actually worked in Mississippi during the race riots.

  • ||

    As it approaches, Federal Reserve Chairman Ben Bernanke has said failing to raise the limit would likely mean the U.S. would default on its debt,

    This is a flat-out lie. As long as we pay the interest on the outstanding debt and redeem bonds as they mature, we have not defaulted.

    Of course, in order to avoid default, we will have to make some very serious cuts in spending, or overtly monetize our debt.

  • ||

    It's not a lie, it's a prediction. Sure, the people who control the purse strings can still make the payments on our debt without raising the debt ceiling...if they choose to. But in light of the biggest fiscal crunch in U.S. history, I highly doubt that they actually will.

    A "prediction" does not deal with what is theoretically possible, but with what is actually likely to happen.

  • ||

    It is a lie. If the US defaults on its debt virtually every bank in the world goes bankrupt overnight. The banking system would completely crash and the US Fed would have to step in and restructure the debt....that is, make the payments for the government.

    Bernanke must know this won't happen. He is playing a fool's game. His job is to maintain credit liquidity, which he isn't doing, monitor the banks to ensure they aren't making stupid loans, and manage reserve rations, not play party politics. He is asking for the Fed to be taken over by whomever is in power at the time. Which would be a disaster.

  • Alan Vanneman||

    "The boldest plan to rein in spending and debt" consists of ordering Congress to rein in spending and debt. I don't see Mike Lee explaining how to get spending down to his 18%. Just do it! By eliminating federal spending in Alaska, maybe?

  • ||

    We could sell Alaska to China. I'm sure they would protect the caribou.

  • Almanian||

    Spend less, maybe? Oh, pacifics?

    1) Elim dept of HHS (and all federal jobs and related budget and spending associated with it)
    2) Elim dept of educ (ditto)
    3) Elim dept of energy (etc. etc.)
    4) Elim FCC (etc.)
    5) Elim EEOC (etc.)
    6) Elim dept of homeland security (retain FBI and CIA at 2000 funding levels for the time being)
    7) DoJ and related -immediately cease all enforcement of federal drug laws - draft legislation to legalize all drugs (all...)
    8) Index SSN retirement age to avg US lifespan beginning next year
    9) Eliminate Medicare over 7 years - transition to state-level programs (if desired by the respective states) during that time

    We'll start there and see where that gets us - there's a lot more, I'm sure.

  • ||

    Proposals 1 through 7 add up to just under $250 billion, or roughly 15% of the deficit. Proposals 8 and 9 would go a lot further, but you might as well propose a bailout from the tooth fairy, 'cause they ain't gonna happen.

  • ||

    Nothing about ending the wars?

  • sevo||

    "Nothing about ending the wars?"

    I'm down with cutting defense spending (let the damn Euros pay their own way), but that ain't gonna make the debt go away.

  • ||

    Clinton and Bush both spent less than 3 trillion running things. O is spending $4.4 trillion. Things ran when Bill and George were spending what they did. They will by going back to those numbers.

  • ||

    You mean the world will end under the crushing weight of bajillions of worthless dollar bill notes? #I'dbuythatforadollar

  • ||

    "Some say the world will end in fire and some say in ice. But in Washington, a lot of people say it will end if we don’t continually raise the debt ceiling."

    Fine, then let it end!

  • MSNBC's Lawrence O'Donnell||

    You freaks are going to trigger a global financial meltdown!

    We're all gonna die!!!!!!

  • Joe Klein's napkin||

    They're also guilty of treason.

  • Almanian||

    ...and hate speech.

  • Chris Matthews||

    And you're all white, too, aren't you?

    Every last one of you reasonoids is white!

    There's definitely an element of ethnic disdain for government that motivates you all.

  • cynical||

    I think the Quarians had the right idea -- Congress should have the right to vote to raise the debt ceiling, but if they do, all of those in favor should be removed from office and denied the right to run again. That way, if they do it, they're doing it because they're concerned about the good of the country, and not just avoiding tough choices to preserve their career. Make it a constitutional amendment or something.

    That said, I can see one awesome benefit of tying max spending to GDP as a percentage -- we're going to see our GDP take off, and be able to rub that in all the other countries' faces. Take that, fuckers! Our GDP just doubled in one year! Booyah! Our fiscally conservative policies are working!

  • Tncm||

    "In 2006 we didn't have 10% unemployment. "

    Quite the economic historian.

    "Yes Republican fiscal hypocrisy and duplicity is cute in normal times, but their hysterical blathering about debt will only result in policies that will do nothing for employment"

    Now, here's the part about Keynesian fiscal and monetary policy that libertarians often forget; yes, it does reduce unemployment. But only in the short run, and only be trapping labor and resources in unproductive government boondoggles. Yes, we could eliminate unemployment by establishing a Bureau of Broken Windows to have people just build up massive pyramids only to break them down again, but would the sunk costs of time, labor, and resources really be worth it?

    I'll say it again. North Korea has an unemployment rate of 0%. How's their economy doing?

    "won't actually make any deficits whole."

    And spending money with abandon does?

    "If I wasn't almost convinced most of them are actually stupid enough to believe the crank bullshit they espouse,"

    This sentence could be so easily applied to every Keynesian Democrat and Republican in Congress.

    "If it weren't for stimulus policies, you tell me why the recession ended as quickly as it did."

    If not for monetary expansionism, regulation, fiscal Keynesianism, and government interventionism in general, it probably would be over by now.

    The depression of 1920, the worst and most brutal in the history of the United States, ended after one year. The government did not nationalize any businesses, or expand credit, or try to "prime the pump" with stimulus spending. The market corrected itself very quickly, much to the horror I imagine of Herbet Hoover and other interventionists.

  • sevo||

    "Now, here's the part about Keynesian fiscal and monetary policy that libertarians often forget; yes, it does reduce unemployment. But only in the short run,..."

    See: Census Bureau employment numbers vs general employment numbers for last year.
    Hired, wasted time (I had *four* of them come by asking the same damn questions) and fired (as they should have been).

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  • Dave Johnson||

    This whole economy thing is like this scenario....." hey the ship is sinking maybe we should turn on the bilge pumps?.....naaah let's wait till we take on another 500,000 gallons of water."

  • Realist||

    I think this pretty much answers The American Dream article

  • sevo||

    Dave Johnson|3.1.11 @ 10:14PM|#
    "This whole economy thing is like this scenario....." hey the ship is sinking maybe we should turn on the bilge pumps?.....naaah let's wait till we take on another 500,000 gallons of water."

    OK, but who's not turning on the pumps?

  • منتدى العرب||

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  • LifeStrategies||

    When will governments learn, as insightful British politician Dan Hannan says:

    You cannot spend your way out of recession or borrow your way out of debt.

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