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 Debt Limit 2ef02

Amidst swirling talks of a drastically revised federal budget for 2018, the United States Congress is staring down the possibility of a default if they cannot pass a measure to raise the debt ceiling by October.

Students of history will recall that the Obama administration faced similar situations in 2011, which contributed to the passage of the Budget Control Act. However, the act was not enough to deter another crisis only two years later and today the increasing costs of government programs and topical issues such as relief for hurricane Harvey demand that the debt ceiling is raised again from its current $19.8 trillion borrowing limit.

What is the Debt Ceiling?

The debt ceiling is a self-imposed limit on how much the US government can borrow. Similar to the way that an individual must demonstrate their ability to pay back money borrowed from a lending institution, the state must be kept from overextending its borrowing. Should the nation’s borrowing power fail, the country could go into default.

A US default would have enormous geopolitical implications worldwide, which is part of the reason Congress is keen on avoiding a default situation. The only rational means of preventing a breach of the debt ceiling are to agree that the country can pay back more debt, or to reduce spending so that the existing budget can operate without additional loans.


As you may have already surmised, the ceiling is an entirely man-made mechanism. The consequences of failing to raise it would be a direct result of Congress failing to act. But nothing in government is ever simple, and the tactics of brinksmanship that have marked congressional negotiation in recent years almost guarantee that this is a fight that will go right down to the wire. That could be a bad plan.

The Political Tactics

Democrats have already proposed that the ceiling is raised, but for Republicans expected to oppose government spending, paying for money we've already spent becomes a political football.

Mitch McConnell and House Speaker Paul Ryan have made promises that the US will not default, but were unwilling to show support for an increase of the debt ceiling. Rather, Ryan pointed blame back at Democrats, accusing them of playing politics with disaster relief funds.

A recent announcement from the White House extends the window of negotiations for three months, raising the debt ceiling and financing the government until the end of the year. What will happen when that time runs out is predictable. We'll be right back in the same place.

Trump a Wildcard

Part of what makes it such a bad plan is Donald Trump. Whereas past presidents could be relied on to side with their party, Trump has nearly as many enemies on the Republican side of the aisle as he does the Democratic.

After his controversial reaction to the Charlottesville crisis, President Donald Trump is being viewed as a variable by Congress members from both parties. In siding with Democrats and collaborating with Chuck Schumer and Nancy Pelosi to pass this three-month extension, Trump hasn’t won any friends from the party whose ticket he ran on.

Possibly the only real win to come out of the three-month deal is the government’s ability to provide $7.85 billion in aid to victims of Hurricane Harvey. Still, the decision to work around Republican opposition instead of collaborating on a long-term solution won’t be forgotten by Republican leadership when this issue surfaces again in mid-December.

Is the Treasury Underrepresented?

At the center of this controversy is the United States Treasury, which is responsible for the day-to-day operations that result from what Congress decides. Treasury Secretary Steven Mnuchin has been an advocate of the ceiling hike since the issue was first broached, but Wall Street has not shown the same level of confidence.

While Mnuchin assures the world that "the government intends to pay its debts," Trump's administration has failed to provide business leaders with access to Treasury officials. During the Obama administration, Wall Street's upper crust was invited to meet with treasury officials to reduce confusion and help keep situations like this calm. That hasn't happened under Trump.

One Symptom of the Larger Problem

The United States needs to be able to continue funding its government, and if you’ve picked up on the fact that our method of self-discipline in this area is rather weak, you’re not the only one.

Despite what either party says about spending policy, the deficit has been growing since 2014 and shows the potential to break back into recession-era levels if left unchecked.

We need a better solution than agreeing that we should have more money. Budget reform is what is required, and soon, if we're going to avoid facing these debt ceiling situations many more times over.

*(Image credit: Stephen Melkisethian/ flickr)  


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