Everyone is saying it will be Armageddon if the US doesn’t raise the debt ceiling, because then it will be unable to pay its creditors for some time, which will raise the future cost of borrowing, and then have a giant ripple effect throughout the rest of the economy.
But here’s what I don’t understand. Isn’t the fact that we are *approaching* the debt ceiling already an indication to creditors that “Hey, we can’t pay the debt without borrowing more money.” Yet we’re fine.
Doesn’t that distress signal already basically indicate that we can’t really pay the debt? It would be like asserting “It’ll really damage your credit score if you miss a payment” to somebody… who has paid their last 3 years of payments *with other credit cards.* Shouldn’t their credit *already* be shot at that point?
Why do the people lending the government money see the government any differently? Why is our credit considered excellent when we pay off our creditors with other creditors money?
In: Economics
The “debt ceiling” is political farce. Congress knows the state of the debt and passes a tax and spending bill (the budget essentially) every year. At the time of the passing of the bill, pretty much everyone (who bothers to) knows the level of debt that the US will be in. (All of this information is available from the US govt – [www.treasurydirect.gov](https://www.treasurydirect.gov))
The debt ceiling is therefore a debate about closing the barn doors after the horse has bolted. Congress already approved the spending and, from simple math, the total amount of debt needed. It was introduced (by Republicans AFAIK) to make political hay over their “concern” over the debt. (For example, when the Republican congress approved their budgets that required debt ceiling increases, they quietly increased the ceiling)
This “debt ceiling” is a completely artificial number. It has no basis in policy. It isn’t developed from the bottom up with some careful analysis of spending needs. It isn’t a number imposed by market forces.
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