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Commentary

Still Living Dangerously With a Debt Ceiling

Congress really needs to do away with an arcane tripwire that might one day blow up the economy.

As part of a bipartisan deal on July 25, 2019, the House of Representatives passed legislation to raise the debt ceiling, as it has done more than 60 times before. (The Senate was expected to pass the bill Wednesday or Thursday.) It's good that we have averted a crisis, but this obscures the fact that Congress keeps laying tripwire for itself that causes ongoing problems for investors and raises the cost of borrowing. In short, the debt-ceiling system is a relic, does not force fiscal responsibility, and might one day trigger a major financial crisis.

Before World War I, every time the federal government needed to borrow more money, Congress approved the debt issuance. During the war, instead of Congress approving new bonds for the war effort, it told the Treasury to just borrow what it needed for different types of debt instruments, up to a limit, and come back and get permission if it needed to borrow more. Later, in 1941, Congress further streamlined the debt ceiling to include all government debt under one limit.

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