The Debt Ceiling Game
Understanding What it is, and Why We Always End Up Here.
Debt ceiling fights are stupid. Not just because they occur far too often, or because they basically self-inflicted wounds. No, they are stupid because every partisan with a take has to chime in with pointing finger, heated rhetoric and hyperbolic blame. People aren’t stupid, they can see with their own eyes.
The Debt Ceiling is analogous to your credit limit on your credit card with one big catch. You see, Congress appropriates money to spend. Through the budget, Omnibus spending bills, and continuing resolutions, the amount they spend is not always checked by how much money we take in revenue (taxes!). Now, if you spend more than you take in, you can either raise taxes (boo! hiss!)1 or you can rack up the debt. What makes this different than a credit card though is that the money is already spent; you don’t get a declined card notice or over limit fees. So by law, the ceiling needs to be raised (like begging your credit card company to raise your limit) so that people who have already done the work for which we said we would pay get paid.
The National Debt right now is over $31,500,000,000,000, which breaks out to about $95,000 per citizen.
Now, for economic reasons, some debt is an OK thing. It helps our credit, repayment of debt is good sign of American reliability and the United States Government pays for a lot of things that the average John Q. Taxpayer doesn’t want to pay for, but does a lot of good domestically and around the world. You may even be surprised to hear that our Debt Capacity as a nation is actually much higher than the $31 trillion mentioned earlier, so we do have space do take on more debt, even though our annual debt obligation now exceeds our Gross Domestic Product (GDP). So long as we keep making payments and cover our obligations, American goverment securities are some of the safest investments in the world. But the volume of debt is also an incredible vulnerability to the United States. Check out this scene from “Too Big to Fail” which was about the Housing Crisis in 2008. This event actually happened (dramatized here).
The economy all goes to shit if we choose not to make the payments, which is what breaching the debt ceiling is— it’s literally, choosing not to pay your debts. During Obama’s presidency, U.S. debt securities was downgraded by Moody’s and S&P for the first time in history not because of a breach, but specifically because one of our major parties continuously tries to THREATEN to breach, scaring investors. That alone increased the interest rates the government had to pay on our debt, further increasing the debt. Now, after that, try to picture what would happen if we chose to stiff our debtholders and not pay at all. As the #1 reserve currency in the world, the entire world economy would start to collapse. That is how stupid and irresponsible a debt ceiling fight is.
A Brief Recent History of the Debt
Now the cause of the debt are a number of things, but the bulk of it can be summed up by just two things; 1) irresponsible financial stewardship and 2) economic catastrophes.
Presidents Reagan and George H.W. Bush (“Deficits don’t matter!”)
Between 1962 and 1993, there were 62 individual increases of the debt ceiling. Most didn’t involve the kind of brinksmanship that occurs today, but often did include some kind of tit for tat as part of another bill. During the Reagan and Bush years, debt became a regular means to pay for things.
Back in the late 1970s, the country was facing the twin economic grim reapers which are high unemployment and high inflation. National debt at the time was less than $2 trillion. To help us get out of this economic malaise, the Reagan Administration took a three pronged approach; increase defense spending, lower and simplify taxes (particularly on high income earners) and pay absolutely zero attention to debts. This represents the beginning of a failure of financial stewardship of the economy since it effectively disassociated the inherent connection between revenues (taxes) and expenditures (government spending). However, it worked; the economy in the ‘80s was kickstarted, government debt was a secure investment and politically it was a huge win for Reagan and his economic plan.
However, Reagan Economic Advisor Milton Friedman had always sold the tax cuts as being recouped by increased economic activity; while there was a huge uptick in spending increasing revenues, they never surpassed the size of the tax cuts given that stimulated them. And so began an endless cycle for Republicans of irresponsible tax cuts followed by huge increases in debt. In Reagan’s two terms, he tripled the entire national debt. A pattern that continued under his successor George Herbert Walker Bush.
Fearing Bush may get squishy about the growing deficits, the Republican Party wanted re-assurances he would not raise taxes. This resulted in Bush’s pledge “Read my lips, no new taxes!” Then came H. Ross Perot. Perot’s entire campaign was centered on the National Debt, and his audience overlapped with Republican base voters. Many typical GOP voters voted for Perot in November 1992, which led to Bill Clinton winning the White House.
President Clinton (Supluses!!!)
Clinton raised taxes on upper incomes and was the beneficiary of a hugely stimulative tech economy boom. The result was the first government surplus in decades.
He also had the unfortunate problem of a newly radicalized Republican Party led by Newt Gingrich. Gingrich and Majority Leader DickArmey began the current political tactic of leveraging the debt ceiling as a cudgel for enacting spending cuts or else resulting in a government shutdown. The thing is, it doesn’t work. It never works. Blame for not increasing the debt limit usually falls on Congress, not the President. Second, government pays a lot of things, and holding up Social Security checks, medicare payments, veterans benefits and more doesn’t go over well with the public. Lastly, its always interpretted as an extremely partisan act, not an attempt at compromise which is what voters want. Clinton won on the several shutdowns that happened and turned the surplus over to the next President George W. Bush.
President George W. Bush (the shit hits the wall)
Bush’s first priority in office was an extremely irresponsible tax cut financed by going back into debt. After 9/11, his next priorities were increasing defense spending for two wars, in Afghanistan (necessary at the time) and Iraq (completely unnecessary). His moves deregulating financial sectors including Housing would also play a huge role in the collapse of that industry in 2007 and 2008. The National Debt escalated with the 2008 deficit tripling from it’s previous high. While the Republicans controlled Congress, there was never a fight on the debt ceiling. In 2007 and 2008, when Democrats controled, facing an economic calamity, there also was no fight on the debt ceiling.
President Obama (Ho-hum, back on track)
President Obama inherited the worst economy since the Great Depression. Several rounds of expensive stimulus was necessary in the housing collapse aftermath to stabilize the economy. Again, he faced a radicalized “Tea Party” Republican contingent bent on shutting down the government over debt ceiling hikes.2 Nonetheless, despite inheriting an economy in free fall, Obama halved the deficits and handed a strong economy to his successor, Donald J. Trump .
President Donald Trump (uh, we have a HUGE problem…)
Trump’s first legislative victory (which took a year to pass) was another ruinous tax cut on upper incomes, gutting revenues again and increasing the deficit. The tax cuts were expected to add a total of $3 trillion over 10 years. However, in what has to be the biggest self-own in political history, he managed to shutdown the government (the longest shutdown ever) by not getting spending for his southern border wall. Over his entire term the debt ceiling was increased three times, without any standoffs.
Aside from the tax cut though Trump’s presidency increased the deficit in his last year to $3 trillion and the total debt over his term to $7 trillion. The cause was the COVID pandemic which required ample stimulus to help people maintain a standard of living and huge drops in revenue caused by a cratering economy. Biden has since nearly halved this mark (which was temporarily high and not necessarily Trump’s fault) dropping it in 2022 by $1.4 trillion, but trillion dollar deficits seem here to stay until tax increases or spending cuts start happening in a major way.
The Debt Ceiling Fights
Everyone always tends to blame Republicans for Debt Ceiling fights, and they are right to. This should not be an issue; get a couple easy concessions, maybe something for back in your districts and pass it. But no, whenever the debt ceiling occurs, they always try and fail.
Which is why nobody ever notices Democratic leaders always serve up this softball to Republicans. To wit, Nancy Pelosi and Chuck Schumer could have passed a debt ceiling hike in December during the lame duck Congress, but didn’t. Instead, they laid a big huge bear trap that the GOP couldn’t wait to just step in. Idiots!
Nonetheless, this is just a game to both sides. It also represents an opportunity to seriously discuss making the tough financial decisions that need to be made. Hopefully, some resolution will become of it and we can get back to having surpluses again.
PurpleAmerica’s Recommended Stories
Don’t just take my word for it that breaching the debt limit will be a financial catastrophe. Here’s Treasury Secretary and Former Fed Chaiman Janet Yellen saying so: https://www.cnn.com/2023/01/20/politics/yellen-amanpour-debt-limit-cnntv
How will it effect you directly? CBS has a nice article. https://www.cbsnews.com/news/debt-limit-ceiling-impact-on-your-finances-social-security-medicare-401k/
Whenever the Debt Ceiling arises, there is always talk about bypassing it with the US Treasury minting a “Trillion Dollar Coin” that can then deposited at the Fed. Here is the Financial Times’ view of that: https://www.ft.com/content/a81d1e3d-3067-4487-99d7-f85a81e37999
Not to mention, the Trillion Dollar Coin always reminds me of this Simpsons Episode:
PurpleAmerica’s Obscure Fact of the Day
We’ve had debt since the country’s inception, but on January 8th, 1835, President Andrew Jackson paid off the U.S. Debt. It’s the only time in history the country has been debt free.
PurpleAmerica Cultural Criticism Corner
That Simpsons Trillion Dollar Bill episode is a great one. The best part though is the conclusion where Mr. Burns tries to buy his way into Cuba. This scene that ends with Castro is a riot.
Back when the National Debt was only $28 trillion, John Oliver did a wonderful piece about it that is quite funny and entertaining, and demonstrates why the debt isn’t entirely a horrible thing. The one thing that shows its outdated though is when he talks about “low interest rates.”
Outstanding Tweet
This is a pretty partisan rant, and I usually abhor this kind of propaganda, but she’s not entirely wrong about a lot of this. A lot of that has to do with that fact that one party in particular is the one being financially irresponsible when it comes to debt ceiling fights.
Parting Thoughts
Just pay your bills, be responsible, stick to a budget and pay your fair share in taxes. Is that so hard America?
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This is something one of our majory parties absolutely refuses to consider, a gross dereliction in responsibility. Grover Norquist, a major player within that party makes candidates sign a pledge never to raise taxes because in his own words he wants to “shrink government down so it can be drowned in a bathtub.”
In 2013, there was also a situation called “going over the fiscal cliff.” This was a whole hodgepodge of bad economic planning, cowardly political policymaking, and horrible timing. Of course, it all had to do with the debt ceiling hike. You can get the specifics of it here. https://en.wikipedia.org/wiki/United_States_fiscal_cliff