The US government has no spending constraint. There is no such thing as the USA not being able to make a debt payment. But for some reason we have enacted a silly law that binds Congress by the “debt ceiling”. The debt ceiling is a misguided law for several reasons:
- The debt ceiling is only reached when past spending results in current debt bumping up against the debt ceiling. This is like deciding to build a 100 foot high structure directly beneath 50 foot high telephone wires and then complaining that we can’t tear down the telephone wires once we reach the 50 foot level. It makes no sense.
- The Public Debt Acts were all put in place under a fixed currency regime in the 30′s and 40′s. In 1971 our monetary system became a floating exchange rate system with no convertibility. The laws, however, remain outdated and are now defunct.
- Congress needs to be constrained in its spending. But is debt the right target? No. The USA, as an autonomous currency issuer can never “run out of money” or fail to make a debt payment. There is simply no such thing as an autonomous currency issuer being constrained in its ability to spend. So it makes no sense to create a debt ceiling to impede debt issuance and risk self imposed default due to political ignorance.
- The true constraint for an autonomous currency issuer is always inflation. Congress should enact a process by which we measure the effect of spending on overall living standards and adjust policy accordingly. We should not have a debt ceiling. If anything, we should have an inflation ceiling.
The best way to get around the perpetual debt ceiling concerns? Just eliminate it. The law makes no sense anyhow and does not apply to our monetary system. There’s absolutely no need for us to keep having recurring “debt ceiling crises” just because policy makers have failed to update the legal system to match our evolving monetary system.