The Debt Ceiling

And now we’re going to hear about the “Debt Ceiling” for months…

Let’s get two things straight from the beginning of this conversation: A): we spend too much money on the wrong things in our country, and B): the Debt Ceiling is a made-for-TV fantasy that was passed into law to make old-school, Gold-Standard luddites feel better. It’s all a made-up crisis.

For the sake of history, let’s review.

The “Debt Ceiling” is a made-up thing that contradicts itself in its very existence. If the Congress passes a spending bill then it should be statutorily funded! There should be no “mulligan” on whether or not we’re going to pay for appropriations that we’ve already made via the Constitutional process. To make it even more clear, the Founders had no patience for this type of silliness either. The Fourteenth Amendment states quite clearly that “the validity of the public debt of the United States…shall not be questioned.”

Then there was the Gephardt Rule that clearly states that any appropriation duly voted on and passed by Congress must be accompanied by a suspension in the debt limit to the point of said appropriations being covered by the US Treasury. We have a constitutional, a statutory, AND a moral obligation to increase the ceiling to the point of our legally passed expenditures or, better yet, get rid of it all together. This isn’t too tough to understand but other parts of the budget process are.

This madness that is “spending money as a federal government is the same as spending money as a family of four” has got to stop. It causes a basic misunderstanding of economics that sends spires of fear throughout the conservative side of the electorate. As an aside, they all know this and they do it on purpose. That’s why conservatives are comfortable doing massive tax cuts that balloon the deficit. They know the money is all made up out of thin air and the deficit is actually pretty good for the economy. On an opposite, yet similar, note: liberals are likely to believe there is no limit to how much money we can spend without any consequence. Of course, both are wrong, but a balanced budget would be terrible for the US and the world. Other countries base their currencies and economies on their long term and most-valuable assets: US Treasury bonds.

Spending money in an economy is not the boogie man. Spending on the wrong things is bad and spending on the right things is good. They have divergent impacts on the economy and should be looked at honestly — not emotionally.

For instance, if we build an interstate highway and its accompanying bridges, we have invested in the capital budget of the country and its citizens get a return on investment. If we give tax breaks to already-profitable, billion-dollar corporations, we get inflation. These are two distinct and easily definable paths to different ends. So any conversation that only discusses cutting spending is silly.

We gave trillions of dollars to corporations via Quantitative Easing (QE) over the last few years and that story never makes the news. I suspect it’s too “inside baseball” to explain to the TV audience so the “news” programs simply ignore it. But in a nutshell, it amounted to about 9 Trillion dollars in spending during the Trump administration alone. And most of that money was used for stock buybacks instead of building the companies.

We need to define and reduce our irrational spending, while raising taxes on the highly profitable to fund things we actually need. There are things that we need to spend money on to be a functional society. We need to spend on defense. We probably don’t need to spend on more standing Army members, but we probably do need to spend on advanced technologies in the Defense industry. We simply need to cut the Pentagon budget by about ½ and make them fight for every penny in the same way we make advocates for Social Security fight for every penny. They are both absolutes, but are both bloated and out of hand. There is — however — one, major difference: Social Security pays for itself and makes a profit.

On that point, we need to understand that 7 Trillion (with a “T”) of our so-called national debt is a promissory note between the General Fund and the wholly made up Social Security Trust Fund.

That’s just one of the silly, made-up things that make this conversation laughable and exhausting. If you ask the man on the street, there are two answers you can count on. One, is that we borrow money to fund the government, and the other is that China owns the most US debt and could call the note at any time. Both of these things are patently false.

We sell US Treasury bonds to anyone who wants to buy them. We do this because back in the 70’s a bunch of unsophisticated dullards were in Congress and thought we needed to keep the country on some tethered version of currency, so we basically agreed to sell enough treasury bonds to balance the amount of “money” the treasury spends via the congressional budget. We never needed to do this, and it really has no hard and fast relation to our actual macroeconomics, but it’s our formal agreement between Congress and the Treasury. FYI: China is not our biggest bond holder. Look it up.

In conclusion (although I’m not nearly done talking about this), we don’t need to balance the budget of the United States. The currency that is put into circulation by our US Department of the Treasury has more than enough “backing” via the full faith and credit of the United States of America to issue more currency without selling more bonds, and we should really consider forgiving certain internal debt (money we owe ourselves) in order to be talking about apples and apples. We should eliminate the Debt Ceiling as a matter of policy. The Constitution is more than clear that we MUST pay our debts as owed. The Constitution demands that the Congress has the power of the purse strings, and therefore the Treasury MUST pay the debts they pass into law. There are no exceptions in the document, and I implore you to point it out if I missed something.

Why don’t we all just agree to do what the Constitution demands: our elected officials pass the laws and the Treasury pays the bills?

Simple. As. That.

And trust me — the government won’t go broke since it’s impossible for a country with a FIAT currency to “go broke.” But that’s for the next diatribe…

Selected References

https://en.wikipedia.org/wiki/History_of_the_United_States_debt_ceiling

Britannica, T. Editors of Encyclopaedia. “gold standard.” Encyclopedia Britannica, January 20, 2023. https://www.britannica.com/topic/gold-standard.

https://www.thebalancemoney.com/who-owns-the-u-s-national-debt-3306124

https://sgp.fas.org/crs/misc/RL31913.pdf

Wide-eyed liberal explanation: