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| Here is the short version of the debt ceiling issue. To start keep in mind the most basic process where: the house passes a bill, the senate passes the bill, the president signs, and then it is a law.
Prior to WW1, Congress had to approve each treasury debt issuance one at a time. In 1917, to make things easier for themselves, they passed a law to allow the treasury to issue debt in order to pay obligations up to a set level – a “debt ceiling”.
This worked okay. Periodically the President (especially Eisenhower) would have to force agencies to cut spending when Congress would not agree to raise the debt ceiling (to accommodate the deficits they had authorized).
In 1974, this stopped working as a law was passed that effectively stripped the President of the power to control agency spending. The new law established a process was where each federal budget would also dictate agency spending and become law going through Congress and signed by the President. Basically Congress sets the budget, the president signs, and its law.
The issue then and now is that the newly enacted budget may have a deficit that necessitates a debt ceiling higher than what the debt ceiling law allows. This is known as needing to raise the debt ceiling.
It’s an obvious error. It was actually fixed from 1979 to 1995 where Congress, aware of the issue, set policy to raise the debt ceiling automatically as a part of the budgeting process when there was deficit spending in the bill. Politics are politics and someone saw an advantage to ending this policy in 1995 and here we are.
When Congress votes yes and passes any bill that runs deficit spending, they ought to be obligated to also vote yes when the debt ceiling needs raised (like they were from 79-95). The President has power to veto the initial spending bill and is therefore also culpable for deficit spending (unless Congress overrides his veto).
So in 2017, when Trump said he saw no point in the debt ceiling, he was right. In 2019 when the debt ceiling was suspended for 2 years, Trump and the Republicans were right. When Yellen, Biden, etc. warn of the dire consequences of not raising the debt ceiling, they are right. The money has already been spent or obligated and it very literally takes a new law to reverse the obligations. Which would be my preference. But I know better. So the next best thing is since you swiped the card, you pay the invoice when it comes due. You have to raise the debt ceiling to keep the government out of default.
I expect this game of chicken to end with days to go. But it is annoying grand standing. And if this doesn’t get worked out – we are looking at the world’s reserve currency in default.
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What's the big deal with the debt celling?
