The origins of the federal government’s statutory debt limit can be traced back to 1917, when the country was borrowing money to finance the Great War. Congress has voted to increase the limit numerous times over the decades, including 10 times since 2001.
The present debt limit is $14.3 trillion, and total outstanding debt subject to the limit currently stands at just under $14 trillion. Given that policymakers don’t have the will to cut spending immediately in order to keep the debt from hitting the limit, a political battle over raising it is unfolding.
The Obama administration is basically warning that congressional (i.e., Republican) intransigence over raising the limit could potentially lead to the federal government defaulting on its debt, because it needs to borrow money in order to make its debt payments. Treasury Secretary Tim Geithner warned Congress that failing to increase the limit would result in “catastrophic economic consequences that would last for decades.” The president’s chief economic adviser, Austan Goolsbee, warned Congress not to “play chicken” over whether to raise the debt limit, as failing to do so would cause “a worse financial economic crisis than anything we saw in 2008… This is not a game. The debt ceiling is not something to toy with.”
Back in 2006, then-Senator Barack Obama apparently wasn’t concerned about the “catastrophic economic consequences” when he voted against raising the debt limit. ABC News recalls Obama’s stated reason for his “no” vote:
The fact that we are here today to debate raising America's debt limit is a sign of leadership failure,” he said on March 16, 2006. “Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America's debt limit.
That’s actually well stated, although we now know that Obama's own failure of leadership is also "shifting the burden of bad choices today onto the backs of our children and grandchildren.”
The president’s press secretary says that Obama voted against raising the debt limit because the outcome wasn’t in doubt and “to make a point about needing to get serious about fiscal discipline.” While the revelation is as unsurprising as it is cynical, it demonstrates that the debate over raising the debt limit is mainly driven by politics.
I strongly doubt that the Republicans will ultimately take actions that lead to the federal government defaulting on the debt. They're simply using the debt limit issue to make political hay over the administration’s fiscal failures, just as Obama did when he was in the Senate and fiscal policy was being made by Republicans.
The never-ending political posturing by both parties when it comes to raising the debt limit has caused some commentators and budget analysts to suggest that Congress should just do away with the limit altogether. They argue that the political brinkmanship simply isn’t worth the risk to the country’s economic well-being.
I believe that forcing policymakers to spar publicly over fiscal policy is healthy, especially at a time when analysts generally agree that the country is headed toward an economic catastrophe if Washington’s mounting debt isn’t brought under control. The country’s economic well-being is already at risk, so I don’t see what there is to be gained from scrapping a tool, albeit a politicized one, that focuses needed attention on a serious problem.
A 2005 paper by Prof. Anita Krishnakumar is similarly supportive:
First, the statute is the last remnant of congressional control or accountability over the national debt—and the primary vehicle through which Congress fulfills its constitutional obligations under Article 1, Section 8 to oversee the borrowing and payment of the public debt. Second, the debt limit statute encourages legislators to consider the interests of the general public and future generations, rather than those of special interests, and thus acts as an important institutional check on party and interest group politics.
As this Article details, the general budget process is party- and interest-group dominated, and involves numerous competing concerns and aggregate figures, among which the annual deficit (borrowing) figure and the status of national debt are only one [sic] of many concerns. Within this framework, debt limit increase bills provide an independent and focused opportunity for Congress to step back and consider the consequences of its deficit-spending decisions, to evaluate its fiscal policies, and even to implement fiscal reform if it decides that it has been borrowing too much too fast.
Krishnakumar concludes that although the debt limit requirement is “far from perfect,” the “criticisms leveled against the statute … are both exaggerated and misdirected.”
In sum, the federal government is not going to default on its debt obligations in the coming months because of a failure to raise the debt limit. The real intrigue is the political gamesmanship that a vote to raise the debt limit will engender. In this regard, Republicans should use the vote as an opportunity to press the administration for budgetary reforms that address a potentially ruinous debt burden that has been driven by the profligate spending policies of both parties.