Currently Washington DC is abuzz with negotiations over increasing the federal debt limit. Sensibly enough, by law the US government can only borrow as much money as the Congress authorizes. The current debt limit of $14.2 trillion dollars was reached on May 15; the US Treasury has been using various tricks to keep making payments since that time, but Treasury Secretary Timothy Geithner has warned that by August 2 the US will effectively be unable to pay its bills unless the debt ceiling is increased. Many in Congress, especially the Republicans in the House and Senate, refuse to authorize more borrowing without substantial cuts to government spending both now and in the future.
The debt ceiling battle is a fight over the past.
In 2001 the Congressional Budget Office, the non-partisan accounting branch of Congress, predicted that at this point the US would have a $2.3 trillion surplus. That was because over the course of the 1990s a combination of increased revenues owing to a booming economy and a slowing rate of government growth led to an ever smaller need for the government to borrow to meet its needs.
Fast forward to 2011, where two wars, a market crash and successive government spending binges labeled “stimulus” conspired to produce a federal debt that is almost equal to the total amount of goods and services Americans produce in a year.
This ever increasing government spending, by both Republican and Democrat President’s and Congresses, took America from a path of fiscal prosperity to the brink of national bankruptcy. Over the last two years alone Washington has added over $2.5 trillion to our national debt. Thus the debate over the debt ceiling is really a debate over whether we pay the bill for things we’ve already bought. It is most easily analogous to a credit card bill that arrives in the mail after a lavish vacation, one that included a few unexpected emergencies along the way.
In this sense the Congress is morally obligated to raise the debt ceiling. In the short term there is no way to pay off the current credit card bill that’s due, without borrowing more. Nevertheless it is always wrong to refuse to pay the bill, even if you didn’t agree with the purchase at the time.
But just because the debt ceiling must be raised doesn’t mean it shouldn’t come without a firm commitment to rein in reckless spending in the future. Although it is an unsavory choice, the reality is that threatening default is the only leverage enjoyed by those who think government is too big and costs too much. Only by proving their willingness to take it to the brink can the proponents of a more reasonable spending plan bring along those who disagree.
Ultimately the current level of government spending is unsustainable. Unless checked there is no avoiding a financial crisis. Many in Washington believe such a crisis should happen now rather than later, when the debt is even larger. Math doesn’t lie; without reform by 2030 the entire budget will be consumed by entitlement programs like Social Security and Medicare alone. Playing brinksmanship with the debt ceiling is a dangerous game, one that could lead to serious market instability. The alternative, pushing even greater unsustainable debt on our children and grandchildren, is worse.