Raising the Debt Ceiling: It Just Makes Sense. Not.

[Editor's Note: Go to http://reason.com/blog/2011/03/01/raising-the-debt-limit-it-just for details, charts, and links]

Some say the world will end in fire and some say in ice.

But in Washington, a lot of people say it will end if we don't continually raise the debt ceiling.

The statutory debt limit, or debt ceiling, represents the maximum amount of debt the federal government can carry at any given time. The limit was created in 1917 so that Congress wouldn't have to vote every time the government wanted to increase the amount of debt (which was becoming a more and more frequent occasion). Since then, the Treasury Department has had the authority to issue new debt up to whatever the limit is to fund government needs. Last year, the limit was raised to $14.3 trillion, an amount that is about to reached.

As it approaches, Federal Reserve Chairman Ben Bernanke has said failing to raise the limit would likely mean the U.S. would default on its debt, creating "real chaos" in place of the fake chaos that's out there now. Treasury Secretary Timothy Geithner has said that failing to raise the limit would be "deeply irresponsible" and and Austan Goolsbee, President Obama's chief economic adviser, has said that not raising the limit would create "the first default in history caused purely by insanity."

Eh, maybe.

As Reason columnist and Mercatus Center economist Veronique de Rugy, has pointed out, we've maxed out the nation's credit card in the past without such dire results. In the mid-1980s, the mid-1990s, and in 2002, for instance, the debt limit wasn't raised for months at a time and the government got along just swell. The government has a big bag of tools it can use, ranging from playing around with the amount of spending that is liable to the limit to prioritizing interest and debt payments over other outlays. Interest on the debt for this year is projected to be about $225 billion and government revenue is expected to be around $2.2 trillion, so the government can easily pay the vig and avoid defaulting.

What it shouldn't do is simply keep piling on the debt. The limit has been raised no fewer than 10 times in the past decade. When Republicans ran the White House and the Congress, they voted overwhelmingly to charge it and Democrats, including Sen. Obama, hollered bloody murder. In 2006, he called the need to yet again increase the debt limit "a sign of leadership failure." Now that Dems run the show, the GOP has suddenly rediscovered its inner cheapskate.

So it goes.

The boldest plan to rein in spending and debt comes from newcomer Sen. Mike Lee (R-Utah), a Tea Party favorite who dispatched Republican incumbent Bob Bennett in the primaries before coasting to victory in the general election last fall. Lee has vowed to block passage of a debt-limit increase unless Congress signs on to his balanced-budget amendment which would cap annual federal spending at 18 percent of Gross Domestic Product (GDP). The amendment would require a super-majority of two-thirds in the Senate and House of Representatives. Lee's bill is competing with another Republican proposal from Sens. Hatch (Utah) and Cornyn (Texas) to cap spending at 20 percent of GDP. The Hatch-Cornyn bill has weaker rules on its higher cap as well.

In 2010, spending came to about 24 percent of GDP and it's expected to come in around 25 percent of GDP in 2011. Since 1950, total federal revenues have averaged 17.8 percent and have reached higher than 20 percent exactly once. Spending over the same time has averaged just under 20 percent.

Whether Lee's proposal carries the day -- and there's a strong case that its passage would do more to calm financial markets than simply bumping up the federal credit line -- neither the Democratic nor the Republican leadership has yet to advance a serious proposal to cut spending and reduce outstanding debt. Indeed, both the president's budget proposal for 2012 and the generally non-existent Republican response are not only deeply irresponsible but clear signs of insanity.

That ain't right. But it does help explain why a government that has increased spending over 62 percent in real dollars can no longer get by on a $14 trillion debt ceiling.

For more info, go to http://reason.com/blog/2011/03/01/raising-the-debt-limit-it-just

Video written and produced by Austin Bragg. Article text by Nick Gillespie.

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• veronique de rugy

[joekiddone]

“If you can’t budget, you can’t govern.” Case closed.

[dgl1962]

What a fraud it is to refer to it as a "debt ceiling" when it can be raised every year.

[luminatedgame]

convince only 50.1% off your dummys to walk off a cliff and they "all" will!

...luminatedgame...2012

[luminatedgame]

And i will say it is 1000% the poeples fault for not being informed educated and reactive to this system....republicans and democrates are to buisy arguing over gay marriage and abortion to realize that america has become one big abortion..."democracy is the worst thing you can give an un-educated public..why do you think our government is forcing it on all the un-educated third world countrys on the planet...another ff$%kn coinsidance?..i think not!

[luminatedgame]

proof...we now have close to a 20 trillion dollar economy...the national dent...20 trillion..coinsadence?

[luminatedgame]

u.s. currency is printed based on debt. it is owed back to the fed thru the treasury, thats why it is a "treasury note". every dollar in exsistance is owed back to where it originated from. OH plus interest, so the only way to pay back the national debt is to give back all of the currency, plus print more to pay back the interest...thus perpetual debt...thus slavery. the fed loves inflation, and wall street loves printing money. the whole system is based upon constant debt. COMPRENDE!

[earthpet]

In order for someone like Hitler or Lenin to be able to come to power, first we need to send the economy into a tailspin.

"I got 98% of what I wanted"--John Boehner

Thanks John, that ought to do it. What could possibly go wrong?

[Elenkhos]

@sarge958 Asshole

[sarge958]

@Elenkhos calling people ass holes isn't going to give us those trillions of dollars back. You ass. lmao sorry but seriously.

[sarge958]

@tk291100 Don't say "republics are this and republicans are that" Both sides are at fault here! Stop pointing the finger at people and DO something!