Let's talk about this debt limit thing.
How many other countries have such a thing?
From a legal and legislative point of view, the US and Danish debt ceilings are similar. Both countries require legislative action to raise the ceiling. However, the Danish approach to this process is very different.
The current Danish debt ceiling is fixed at 115 percent of 2010 GDP. Since the outstanding gross general government debt in Denmark is below 40 percent of GDP and is 34 percent of the debt ceiling limit. In other words, the Danish debt ceiling is almost three times the level of actual outstanding gross debt and of no practical relevance for government budget making or debt management.
It is as if Congress set the limit at $50 Trillion and said, Go away and don't bother us for awhile.
Now, why do we have a debt ceiling at all? Can we do away with it? Not really because of two quirks in our Constitution.
The Constitution gives the Congress the primary responsibility for authorizing a bond issue while giving the Executive (Treasury) the responsibility for issuing bonds. In 1917 the various financial burdens (Panama Canal, etc.) meant the the Treasury kept going to Congress for individual bond issues. Remember, we were on the gold standard so the covering of the deficit with bonds was important and necessary.
The Constitution does not allow the various branches of government to delegate authority without clear goals and limits. It also separates the functions of budget, allocation, and debt acquisition; this is unlike most other countries, except, of course, Denmark. :=))
So Congress set a high debt limit, $11.5 billion, to cover the run up to our entry into WWI and said, go away and don't bother us for a while.
So, what was the debt pattern at the time? In 1911 it was $2,709,000,000. (That's $2.7 billion for those of us that can't count zeros fast.) In 1921 it was $24,965,000,000 ($25 billion is close enough.)
Oh dear, kind of popped through that limit thing? Well, not really. Let's see what Congress did about that debt limit. (With, apparently, little drama.)
In December 1919 it raised the limit to $43 billion. Note, that is just short of double the debt hit in 1921.
For anyone curious I put in three more changes in the debt limit.
December 1939 - $45 billion (20 years?)
June 1940 - $49 billion
February 1941 - $65 billion
(February 1941??? Odd. I wonder what did they see coming?)
I leave it as an exercise for the student to look up the actual debts during those years.
(http://illuminations.nctm.org/lessons/NatDebt/NatDebt-AS-Solutions.pdf) (You didn't think I'd leave you hanging, did you?)
But it is interesting that, much like Denmark, they took care to stay well ahead of the economic needs and did not engage in silly games.
The difference now, with the US debt ceiling, is it has become an excuse to enable members to politically grandstand and vent empty rhetoric about fiscal sustain-ability.
This is half of the problem with the bond indebtedness. (Remember, with a fiat currency, bond revenue doesn't pay for anything.)
By law the Treasury is required to balance the deficit with tax and bond revenue. To be short and to the point: This law became a complete non-sequitur on Aug 15, 1971.
But it is still in force.
Consider this question: On the government spread sheet, the cell containing the outlays of money is negative. It's a negative number, you know, a minus (-) sign in front.
And who cares?
It's a negative number; the government issues a check and subtracts the amount from that negative number so that it's a little more negative. Is there a bank or business that will refuse the government check because "it is overdrawn"?
Will a government check ever "bounce"?
As bond and tax revenues come in they will move that number in a positive direction.
But who cares?
Taxes give money value and control demand to curb inflation. They also move a number a little more positive but no one really cares.
Bonds provide a safe savings account for the public. They provide a means for foreign companies and governments to conduct business here in US currency. They provide a means of controlling interest rates on bank reserve accounts.
Oh! And their revenue moves a number on a spread sheet in a positive direction. And no one should care.
A government check in a fiat currency will never, ever, bounce regardless if that number is plus or minus.
There are a lot of numbers that indicate the health of the economy and of the citizens, the debt is not one of them. Not even close.
One could do well to study the economists in the group self labeled as Deficit Owls, a group including: Stephanie Kelton, Warren Mosler, L. Randall Wray, James K. Galbraith, and Bill Mitchell.
(Note: JAMES K. Galbraith is the son of JOHN K. Galbraith, lest there be confusion.)
This will be your opportunity, nay, duty, to ask questions about the crazy things I have said.
The government can never go broke.
Taxes are important but don't pay for anything.
Bonds are important but the revenue does not pay for anything.
There is no need to balance the deficit with revenue.
There are Deficit Hawks that claim deficits are bad and must be eliminated.
There are Deficit Doves that claim deficits are not important and we must look elsewhere.
A Deficit Owl says: That spending is a measure of how hard we are pushing the economic gas pedal. Taxes are how hard we are pushing the economic brake.
We must watch the inflation, unemployment, percent of production capacity in use and use these numbers balance the two (control the deficit).