Today is the day after Election Day or perhaps more accurately the day after the 2020 voting season ended in America. I’m sure most readers expected some sort of analysis. I’m writing this almost a week prior to publishing because I don’t expect definitive results on the presidential race or control of the Senate on election night. Therefore I decided to write a political but non-2020 election related article about a practice that America needs to eliminate regardless of who is in Washington, DC – the debt ceiling. At best it is redundant; at worse it is dangerous. Let’s explore.
In brief the debt ceiling is the legal ceiling, set by congress, on how much the Treasury Department can borrow. The Treasury needs to borrow to pay the country’s obligations. Those obligations were approved by congress and signed off on by the president. In other words the “purchases” were already approved. Now the “bill” is in and it has to be paid. The debt ceiling has absolutely nothing to do with new spending it merely facilitates paying for prior authorized spending.
Since the revenue from taxes and fees is insufficient to pay the debts it is necessary to borrow. This is similar to when your paycheck(s) don’t cover the bills and since the government doesn’t have any significant savings (like most American households) it has to borrow the money. If possible we expect an individual or business lacking sufficient cash on hand to cover its current obligations to borrow not default. America’s creditors expect no less from America.
Via the sale of T-Bills America has a steady supply of entities and individuals willing to lend us money. There are two beauties to the situation we currently find America in. First, we are borrowing at extremely low interest rates. Second, we are borrowing in American dollars. I could write a book on the benefit of those two factors for America but this is neither the time nor the place.
The American dollar is the de facto world reserve currency. Related to the above paragraph it is in our best interest to keep it that way. The only threat to that status is a default on our debt. The minute we default the interest rate would go up significantly and there is a good possibility we would no longer be able to borrow in American dollars which has serious negative monetary policy repercussions.
Only a fool would willingly consider not raising the debt ceiling resulting in default. I contend that is why the only serious threat of that action came from the economically ignorant and anarchist Tea Party.
I contend that the debt ceiling is unnecessary and a tool for politicians to posture. The borrowing is to pay obligations which have already been approved by those same politicians. We expect businesses and individuals to take into account how they are going to pay a debt before they incur it. I think it is reasonable to expect the same of our federal legislative and executive branches.
All the debt ceiling does is afford irresponsible politicians the opportunity to hold cerebral ones hostage with the welfare of America and the global economy endangered. If we were to eliminate the debt ceiling the only changes would be less unproductive “drama time” and one less thing that could go wrong.
This is not a partisan issue; it is a common sense issue. Donkeys and elephants have nothing to do with it.
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