Although the death of Osama Bin Laden has monopolized the news since Sunday night, lurking just behind the front page is big financial news–the debt ceiling. The debt ceiling caps how much the federal government can borrow and is currently set at $14.294 trillion. Let’s look at the number with all the zeros added in–$14,294,000,000,000. As we near that limit, our good friends in Washington have started bickering over whether to raise the debt ceiling.
Basically, some Republicans have said they will only agree to raise the debt ceiling if spending cuts are implemented at the same time. Democrats retort that a failure to raise the limit would plunge the country into default and financial chaos. Basically, the politicians are once again talking at each other, rather than with each other.
But the question is an important one–should the debt ceiling by raised without some steps being taken to reduce our spending? And if it should, what’s the point of the debt ceiling? Let’s take a quick look at the history of the debt ceiling, and then we’ll come back to these questions.
Brief History of the Debt Ceiling
Before 1917, Congress had to approve each time the government went into debt. In 1917, a law was passed that allowed the government to go into debt without Congressional approval, but only up to a certain limit. And thus, the debt ceiling was born. In 1917, the limit was $11.5 billion, according to a CNN report. Since 1917, the debt ceiling has grown to its current point just north of $14 trillion, as this chart from the CCN report depicts:
The Debt Ceiling in a Perfect World
In a perfect world, reaching the limit on federal government debt would prompt politicians to come together to solve our financial crisis. After all, doesn’t that seem to be the point of the limit in the first place? If the purpose of setting a debt limit is not to control spending, then what’s the purpose? If the only consequence of reaching the debt ceiling is to raise it again, then why have it in the first place? Let’s just set the limit to something we’ll never each in our lifetime and be done with it.
Should Spending Cuts be a Precondition to Raising the Debt Ceiling
And that brings us to the key question–should spending cuts be part of the debate? My initial reaction to this question was no. The discussion over spending cuts should occur as part of the federal budget debate. And in a perfect world, that’s what would happen. Unfortunately, politicians have proven unwilling to act until they are forced to, at least when it comes to our money.
So now, I’m for ANYTHING that forces our lovely politicians to stop playing politics and start controlling spending. Shut down the government (at least non-essential personnel) if that’s what it takes. And yes, hold the debt ceiling hostage to bring reluctant politicians to the table. We are long past playing nice.
And in case there was any doubt, check out this chart comparing our debt with gross domestic product (via Wikipedia):
Osama Bin Laden and the Debt Ceiling
As a final note, it’s worth pointing out that Bin Laden’s attack on the United States wasn’t just on 9/11. In fact, the economic impact of those horrific moments will be felt for a long time to come. As Ezra Klein of the Washington Post noted,
Bin Laden, according to Gartenstein-Ross, had a strategy that we never bothered to understand, and thus that we never bothered to defend against. What he really wanted to do — and, more to the point, what he thought he could do — was bankrupt the United States of America. After all, he’d done the bankrupt-a-superpower thing before. And though it didn’t quite work out this time, it worked a lot better than most of us, in this exultant moment, are willing to admit.
So what’s your opinion? Should spending cuts be a precondition to raising the debt ceiling?
Published or updated May 3, 2011.