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The Debt Ceiling Hysteria and Profligate Government

February 6, 2018 in Economics

By Richard M. Ebeling

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By: Richard M. Ebeling

Once again, the financial fears have been ratcheted up due to recent announcements by the U.S. Treasury Secretary, Steven Mnuchin, and the Congressional Budget Office (CBO) that by the middle of March 2018 the Federal government will have run out of room to continue borrowing due to the official debt ceiling. Some are now calling for scrapping a legal debt ceiling altogether, and allow Uncle Sam to have an unlimited line of credit. This is a bad idea.

Back in September 2017, Congress and the President agreed to temporarily suspend the Federal debt ceiling until December 8, 2017. Whatever might be the cumulative outstanding debt at that time would become the new legal ceiling, unless Congress voted to raise it, which did not happen. So when December 8 rolled around, the total Federal debt, due to continuing government borrowing in the last months of 2017, came to around $20.5 trillion.

The Debt Default Drama and Ending the Debt Ceiling

Since then the Treasury Department has been applying a variety of previously used devices out of its grab bag of tricks to shift funds around and delay paying into a number of Federal accounts to keep spending more money than it has been taking in, in taxes. As a result, de facto outstanding Federal debt now stands at over $20.63 trillion, and rising.

Once more the bugaboo of “default” has been heard in various quarters unless the debt limit is increased by mid-March, when the Treasury’s accounting manipulations will have reached their end; unless, of course, the Congress and the President agree to raise the debt limit or to simply jettison the existing legislative rule of a Federal debt ceiling altogether.

James Capretta, a senior research fellow at the American Enterprise Institute, recently proposed repealing the debt ceiling legislation in an opinion piece that appeared on the website of Real Clear Policy on February 2, 2018. Mr. Capretta argued that having the debt ceiling fosters concern about a default on interest payments coming due on past debt that could seriously and dangerously shake the credit-worthiness of the U.S. government in financial markets around the world. Concerns about Uncle Sam’s willingness and ability to pay its global creditors in a timely fashion, due to the debt limit, also weakens the U.S. as an attractive destination for foreign investors to put their money, Mr. Capretta reasoned.

Since the Federal government has not …read more


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