$19 Trillion and Counting: The Dangers of Unlimited Debt

"If you find yourself in a hole, stop digging."


Medill DC

The statutory limit on how much debt the federal government can accumulate is back in the news, but this time it's not because Washington is close to breaching it. That's not a present concern thanks to the year-end bipartisan spending spree that included a suspension of the debt limit until March 2017. The news is that a report from the House Financial Services Committee found that the Obama administration's Treasury Department has been repeatedly misleading the American public on the matter.

Treasury has routinely rejected the idea that once the government reaches the debt limit, federal spending could be prioritized to avoid a default. During a previous debate over the debt limit in 2011, my colleague Jason Fichtner and I wrote a paper explaining that even if Treasury is unable to issue more debt, it can still avoid a default and thus give policymakers more time to implement reforms that would put the government on a more sustainable fiscal path.

Contrary to Treasury's claims, we argued that it has several financial management options to continue paying the government's primary obligations. Specifically, Treasury could use incoming tax receipts to cover high priority claims including the interest on existing debt, the principal on that debt, Social Security benefits, and more. Government assets could also be liquidated to pay bills.

Treasury claimed that such options were neither acceptable nor feasible, and thus the only choice was for Congress to promptly agree to increase the debt limit. Then-Treasury Secretary Timothy Geithner claimed that prioritizing was out of the question and that failing to pay any of the government's bills would be the equivalent of defaulting on the debt. The same thing happened again during the administration's 2013 showdown with Congress over lifting the debt limit. This time it was Geithner's replacement, Jacob Lew, claiming that prioritization was not an option.

We now know that the administration's claims were untrue. As it turns out, documents subpoenaed by the House Financial Services Committee reveal that during the 2013 debt ceiling debate the Obama administration knew it was actually capable of prioritizing payments. Indeed, the Federal Reserve Bank of New York was conducting "tabletop exercises" in preparation for what the administration was publicly stating couldn't be done. The documents show that while Treasury was helping the administration scare the public, its behind-the-scenes actions proved otherwise.

While Treasury and the administration's deceptive behavior is disturbing, it's good news for the next battle over lifting the debt limit early next year. I have repeatedly made it clear in the past that I believe defaulting on the debt is not an acceptable option. However, continuing to raise the debt limit without making any substantive changes to the unsustainable financial path we are on is just as irresponsible. Under the watch of both Republicans and Democrats, the debt limit has been raised 20 times since 1993. The result is that the federal debt has ballooned from less than $5 trillion in 1993 to $19 trillion and counting today.

Deficits are also going back up thanks to a bipartisan inability to get spending under control. According to the Congressional Budget Office's latest projections, cumulative annual budget deficits will add another $9.4 trillion in debt to the federal government's mountain of red ink. That figure is $1.5 trillion higher than the CBO projected less than six months ago.

Will Rogers once said, "If you find yourself in a hole, stop digging." Policymakers need to stop digging and instead implement institutional reforms that constrain government spending, which is the underlying cause of the mounting debt. Indeed, that should be a precondition to raising the debt limit next year. And this time we will know that Treasury has the means to give Congress the time to finally get it done.


NEXT: Clinton the Crook

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  1. +1 Will Rogers.

    So…. what has Trump said about reducing the national debt?

    And when the SHTF, I hope I’m not still in NJ.…..ps_ri.html

    1. He says he wants to cut it, but is predictably vague about how. He’s pretty much ruled out any significant reform to entitlements, and he wants to increase defense spending. Since that’s most of the budget, where he expects to find any substantial savings is beyond me.

  2. Why have a “debt limit” if it must be raised, always? Doesn’t look to me as if it limits doodly-squat. I suspect it exists solely for the purpose of creating fake political drama.

    1. This.

      Obama should just eliminate it.

      1. because it fails to do what it is supposed to do, does not mean it should be eliminated. if i can’t pay down my credit card, it doesn’t mean it’s OK to keep spending beyond my means, as long as the bank keeps extending my credit limit. (so… they should just get rid of my credit limit)

        1. Pretty sure that was sarcasm.

        2. The government debt limit is not quite like a bank credit limit. The government debt limit is more like the limit you impose upon yourself because you know that it isn’t wise to keep piling on debt that you can’t pay back, even though the bank will still loan you money. But if you tell yourself “I won’t accumulate more than $10,000 of debt” but then raise that value every time you approach it, then your limit is meaningless and you’re only fooling yourself. You’ll keep going until you crash.

          The government has pledged to the citizens that they wouldn’t go over a certain limit of debt no matter what the banks are willing to offer. The pledge is a lie.

        3. If the bank continuously raises your credit limit, then you effectively have no credit limit. It’s just words on a piece of paper that no one gives a shit about.

      2. At least the debt limit argument brings the issue into the news. If nothing else, it’s worth that. It also shows the public how little most politicians care about it. It needs to be kept.

  3. Why is the debt only an issue when a democrat is in office? Under Bush the debt was talked about with a wink and a nod and usually the extent of it was ‘Bush spends like a drunken sailor HA HA! But if we can get back to the real issue at hand, gay marriage…”. Not one candidate has offered any meaningful solution to reducing the debt, in fact all I hear are programs that will increase it such as carpet bombing the sh!t out of them, or increasing security measures to protect the homeland.

    1. Well, if you take out Rand, then you are correct. But then again, he did take himself out.

      1. Rand was taken out by the 95% of Iowa Republican voters who, like their preferred candidates, actually don’t give a shit about the debt.

    2. apparently you don’t remember how strong the booosh hating was. the cost of the Iraq war was a favorite talking point for dems for years.

    3. Reason published many, many critiques of BOOOOSH’s wasteful spending too. Perhaps if you pulled your head out of your ass you’d realize that, but I doubt it.

    4. At any given moment, we take issue with whoever is spending the money. The fact that Obama’s predecessors were doing it too is true but irrelevant. As I recall the Democrats don’t do the “debt limit chicken” game but that’s not on us.

      It is fair to say that things will not improve if a Repub wins the WH.

      1. It is fair to say that things will not improve if a Repub wins the WH.

        Sadly, so much this.

    5. Under Bush the debt was talked about with a wink and a nod

      If memory serves, “Porkbusters” was a Bush-era thing.

      The deficit was smaller every year under Bush than it has been under Obama.

      From 2004 on, the deficit shrank under Bush until the bailouts at the very end of his term.

      1. Just to add some facts into the equation, on a percentage basis the debt has increased less under Obama than it did under Bush. You can check my math if you don’t believe it.

        1. That’s only true if you tag Bush with the Stimulus that passed in March of 2009. Remember, the FY2009 budget was held up thru the election and signed by Obama after the election, so he gets credit for that.

          But to keep timeframes in alignment – deficit at end of FY2000 = $5.67T. End of FY08 = $10.02T. End of FY15 = $18.15T (FY08-FY00)/FY00 = 75%. (FY15-FY08)/FY08 = 81%.

          And yippee, less than halfway thru the year and we’ve added close to another trillion to top $19T.

          Ergo, your math sucks.

        2. It doesn’t really matter who’s to blame (everyone, BTW). What matters is electing people (anyone) who are serious about reducing the debt. Unfortunately, it’s hard to separate them from the crowd of pols who are more than happy to tell us what we want to hear, then promptly forget about it.

      2. Once the bailouts were over, those came off of the budget. Obumbum got to claim those as part of his deficit reduction. Liberals have been chiming that bullshit since it happened. “Oh, Obumbum cut the deficit.” Very deceptive mother fuckers, all of them.

        1. Yep, kinda like a store that doubles all their prices and then announces a “50% off sale”. It’s easier to “cut” if you start with an inflated baseline. Such deceptive language is par for the course when it comes to government spending. It’s not likely to stop any time soon, since it benefits both Teams. Supporters want to increase spending on Project A by 20%, but opponents only vote to increase it by 10%. What happens? Opponents brag to their constituents about “cutting” spending, and supporters whine to theirs about the opponents “slashing” spending. Both get a rousing response from the faithful, and the tide of red ink continues to roll in.

    6. First you have a short term memory. People complained about the debt under Bush.

      The real issue is Obama looked at what Bush was doing and said amateur and put it up to unforeseen levels.
      Remember we are taking in record receipts yet spending more than ever.

      You argue if it was Bush or the Democrat congress that jacked it up at the end. Doesn’t matter but sucked.

    7. Libertarians routinely spoke out against W.’s borrowing and spending, as did some true fiscal conservatives. I remember being distinctly alarmed at the sharp upward slope of the debt and spending graphs during W.’s terms in office.

  4. Government assets could also be liquidated to pay bills.

    How about putting most of the federal lands in the western US on the block? That should cover a good chunk of the debt.

    1. Selling assets to pay of debt only works if you plan to actually change your spending habits.

    2. Beat me to it.

  5. Government assets could also be liquidated to pay bills.

    You would think all that federal land out west would be worth something. Auction it off. Then slash the BLM down to about nothing.

    1. BLS – Bureau of Land Sales

    2. A lot of it is worth jack shit.

      People aren’t stampeding over each other to buy land in the middle of nowhere.

      1. Then they need to start seizing more valuable land!

        I kid, I kid. And yet this very thing is happening now, and it’s not funny at all.

  6. Don’t you realize? We have a fist currency.

    We can’t run out of money!

    It’s impossible!

    Money is only as scarce as the government wants it to be!

    Free the money!

    Perpetual motion!

    1. We have a fist currency.

      Typo of the day,

    2. Good thing we have that Will Rogers cliche to set us straight! Golly gee shucks.

      1. It should all be OK, as long as everyone pays their fate share.

  7. I remember when the national debt tipped over $1,000,000,000,000 under Bush I. There did seem to be a serious shock to the system at that time. But now we toss a cool $1,200,000,000,000 on PER YEAR like it’s nothing at all. Over 200 year to rack up the first Trillion, and now it’s an annual slide of a credit card through a reader.

    A few years back, on some comment section out there, I said that our currency is “socialist” and was laughed at by some young fool. Well, this sort of fiscal policy is precisely what you get with socialist, fiat, racketeer caliber currency. Skyrocketing debt, slight of hand debasement, the gorging of the “seed corn”, and only the mentally deluded still believe that a concept of “equity” exists. The personal balance sheets of individuals have been consolidated into the Fed Treasury a long time ago. What you have is illusory.

    1. cont

      And this doesn’t even take into to account the accrual basis debt of underfunded liabilities that seems to be too ephemeral for even many here to grasp. Several tens of Trillions in that figure alone. Many people just snap their fingers at that figure as not being “real”, but it’s as real as every individual misallocation of resources that has been made based on these “default-able” defined benefits. Millions of people have not saved anything, or MAYBE a year’s living money, and they’re expecting every last penny of these defined benefits.

      The upshot, of course, is NONE of the current politicians are even breathing a word as the can is kicked on down the road, The problem is the end of the road isn’t decades off anymore, it’s a few short years. The politician coming close to talking about it is Uncle Bernie, and his solution is to nationalize everything and he’ll decide what is important and what isn’t. Unfortunately, that’s the end game in our coropora-fascistic monstrosity – it’s just a matter if which side wins – the Strasserites (like Uncle Bernie) or the Other Kind That Isn’t Supposed To Be Named Lest You Get Godwin’d.

      1. Toolkien, I agree wholeheartedly with what you have written. The unfunded liabilities just for Social Security & Medicare are on the order of around $75 TRILLION over the next 50 years.

        One minor issue, the national debt in 2001, when Bush was inaugurated, was just under $6 trillion. It has more than tripled since then. That is still bad enough. The graph looks like (to use a Goreism) a “hockey stick”!


        (But there are several places to view the historical debt chart.)

      2. “Millions of people have not saved anything, or MAYBE a year’s living money, and they’re expecting every last penny of these defined benefits.” – wouldn’t you say that your rant makes those people look like the wise ones? If the apocalypse comes to pass, all that saved “money” will only be useful to start fires and wipe your behind. Right now we’re in the musical chairs part of the program, where everyone hopes it’s the other guy that gets screwed. If and/or when the economy finally does collapse, you should have some hard assets like diamonds and firearms. People might trade diamonds, and they’ll definitely be unruly, so both make more sense than saving at 1% interest. Otherwise, I agree it’s unsustainable. But it’ll have to begin to collapse before any real steps are taken to change things, which will likely be too late. So, keep the music playing, we’re all going to die one day, right?

        1. “…wise ones…”

          I think about this often. Who are the real winners/wise ones through all these crises?

          When the student loan bubble pops and if the students get their debt written off, the true winners will be the for-profit colleges that tapped into what would essentially be a giant indirect corporate welfare scam and walked away with the profits leaving many of the students with worthless degrees. They got billions/trillions for essentially delivering goods/services of little or no value, which nears 100% profit if you count the teachers as being in on the scam.

          Those guys are the winners/wise ones. They saw the money and went right for it.

          The War on Terror has enriched many a defense contractor–they’re winners for sure.

          Why am I not doing this sort of thing? My conscience is just too strong…

  8. The question is how to best be prepared when it all comes crashing down, because I doubt any argument about the idiocy of expansive debt and growing government is gonna change the shitty trajectory of the economy.
    Government doesn’t follow the law, representatives don’t represent or lead, and the majority of voters want free shit. Recipe for disaster.

  9. It’s crazy that we have these semi-yearly panics over raising the debt ceiling. They should just introduce an amendment that says we learned our lesson and promise to spend responsibly from now on. Then we can permanently abolish the debt ceiling and no more panics scaring the population and threatening to shut down the government and making our creditors all jittery.

    Also I was think that plane crashes are a big problem and create such fear and panic in the population. Therefore I propose that we build a big hole in the center of the country and in the event of a crash we just push everything down the hole. Then forget about it and pretend it never happened.

  10. I figured it would be technologically feasible (despite the administration’s claims otherwise); just prioritize requests for payments originating from certain agencies/departments. It may have taken some work but it’s not like they didn’t have, literally, MONTHS to prepare for that eventuality.

    I believe the bigger issues were:

    (a) is it legally feasible for Treasury to prioritize certain debt? I have not seen that answered in the affirmative anywhere. Even if there is a law “allowing” prioritization, there could possibly be constitutional due process issues in play if certain classes of creditors get de-prioritized (I consider it unlikely but it has never been litigated).

    (b) would the markets view any nonpayment of a bill as a default? I know this is not equivalent but if I choose to prioritize my student loan payment over my credit card payment, I’m still defaulting on my debt and my credit rating will suffer.

    1. These two points were discussed on various sites like ZeroHedge, etc.

      1) Legally feasible or not, the gov’t did intend to and was planning to prioritize certain debts. We know pretty well that the illegality of an action doesn’t seem to deter the Obama administration from doing it. Jack Lew was quoted as saying he would do so (I don’t have the link to the quote.)

      2) Yes, the markets would view nonpayment of any gov’t obligations as a default, although they may not respond with immediate or expected price action. There is something funny going on in the markets where prices no longer reflect reality. But people would still know that the gov’t was in technical default. (These discussions were made about Greece over the past several years and then Puerto Rico in the past two years.)

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  13. How government solves problems.

  14. Our country is beyond broke. We owe so much now that we’ll never be able to repay it, especially with neither party…nor the American people…willing to make the sacrifices that we would have to make in order to begin paying it off.
    The only reason we’re still able to function and are not in the same financial situation as Greece is that we’re the most powerful country in the world, and nobody else has enough to come in and repossess.

  15. once i reach my credit limit, i can’t buy more stuff. i don’t understand why treasury just doesn’t deny future purchases beyond our current limit. instead we allow a gun to be put to our heads by way of saying we have no choice but to borrow more because we’ve already spent all this money beyond what we’ve already borrowed in the first place. why not just say the government can’t have any more guns….so to speak?

    1. Find Paul Krugman and ask him what you just asked. Prepare for your mind to be boggled at the answer.

  16. I’m Turbo Tax Timmy – have you tried my new software?

    Fill out the form a get free government money!

  17. “If you find yourself in a hole, stop digging.”

    But that’s actually the wrong idiom for the situation.

    If it’s “you” in the hole and you know you can’t get out and bankruptcy is inevitable, it’s “in for a dime, in for a dollar”.

    If it’s not “you” in the hole, and you’re a looter sucking some carcass dry, it’s “suck faster than the other looters”.

    In both cases, the proper musical accompaniment is “Enjoy Yourself – It’s Later Than You Think”.

  18. “Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide. It is in vain to say that democracy is less vain, less proud, less selfish, less ambitious, or less avaricious than aristocracy or monarchy. It is not true, in fact, and nowhere appears in history. Those passions are the same in all men, under all forms of simple government, and when unchecked, produce the same effects of fraud, violence, and cruelty. When clear prospects are opened before vanity, pride, avarice, or ambition, for their easy gratification, it is hard for the most considerate philosophers and the most conscientious moralists to resist the temptation. Individuals have conquered themselves. Nations and large bodies of men, never.”
    – John Adams

    “Democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine percent.”
    – Thomas Jefferson

    Democracy is the most vile form of government. … democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property: and have in general been as short in their lives as the have been violent in their deaths.”
    – James Madison

    A Republic, if you can keep it”
    -Benjamin Franklin

    well we couldn’t…

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