Just Eliminate The Debt Ceiling….

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  The laws, however, remain outdated and are now defunct.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.

About

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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Guest
Tom Hickey
4 years 5 months ago

Since 1979, the House of Representatives passed a rule to automatically raise the debt ceiling when passing a budget, without the need for a separate vote on the debt ceiling, except when the House votes to waive or repeal this rule. The exception to the rule was invoked in 1995, which resulted in two government shutdowns.[43] Wikipedia-Debt Ceiling

Thank Speaker Gingrich.

Guest
Greg
4 years 5 months ago

After all….. “there needs to be strict spending guidelines” (This is what I would hear from the deficit phobes at work)

Guest
Greg
4 years 5 months ago

Agreed, but this has less chance of passing than a JG.

Guest
Dunce Cap Aficionado
4 years 5 months ago

Per your tweet, it should be replaced immediately and directly with an inflation ceiling.

Admin
4 years 5 months ago

So if there’s an inflation ceiling, what’s your policy lever(s) to keep it down?

Unless you know what actions to take to bring inflation down and how to set up a formula-based system so those actions are done automatically, its just an aspirational goal, like being the first female astronaut on Mars or something.

Guest
Dunce Cap Aficionado
4 years 5 months ago

Well unlike some people, I’m NOT against females being astronauts or them going to Mars! (You’ve just Gingriched).

All kidding aside I just wanted to bring up the idea. Because (as we all know) solvency isn’t the constraint and inflation is.

Hell, as I like to say, I wear the hat for a reason. I’m not gonna be the person to come up with a way to do it, but I know that the direction to focus the conversation is better not being only ‘what we concentrate on is wrong’ but also ‘this is what we should concentrate on…’

Admin
4 years 5 months ago

Exactly. This is a dumb set of laws. We should eliminate the debt ceiling entirely.

We should also not force the U.S. to borrow to deficit spend. It’s just silly in todays world.

Guest
Dan M.
4 years 5 months ago

Yes.

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