Tear down the debt ceiling!

Ex-Reagan Administration official Bruce Bartlett makes some excellent points about Congress’s annual vote on whether to raise the debt ceiling:

  1. it’s superfluous (no other country, as far as he could tell, has such a ritual)
  2. it’s at best a distraction
  3. it allows policymakers to vote for budget-busting tax cuts, wars, new entitlements, etc., while pretending to be deficit hawks because they voted against raising the debt ceiling
  4. worst of all, if the debt-ceiling resolution ever did get voted down, as some Republicans* are eager to do, the USA would immediately have to start defaulting on Treasury bonds as they came due.  Two hundred and twenty years of building the world’s best credit rating would be undone in a flash.

(Hat tip: WSJ Real Time Economics)

Of course, as Paul Krugman pointed out recently, in nearly all cases, “Deficit hawkery is just a stick with which to beat down social programs.” So if the object of the game is to whale away at social programs, losing the nation’s stellar credit rating would be worth it. At least on paper. “Deficit hawk” is too tame a phrase to describe a person who would favor such a strategy — “fiscal Armageddonist” is more like it.

*Ironically placed next to Bartlett’s blog post was an ad by Rep. Michele Bachmann (R-Mageddon) to “Tell Congress – Don’t Raise the Debt Ceiling.”

P.S. “Waiting for the End of the World” always sounds better live:

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4 Responses to “Tear down the debt ceiling!”

  1. spdbrnr34 Says:

    Bartlett’s statement “Two hundred and twenty years of building the world’s best credit rating would be undone in a flash.” is wrong.

    Not undone in a flash at all, rather, undone over a roughly 45 yr period, as spending rose out of control, Vietnam & social programs required more debt financing, and we then defaulted on our gold backing/obligation in Aug 1971. Look at the dollar’s value vs. real money (gold & silver) since 1971.

    The currency markets and bullion markets have been downgrading our credit rating for almost 40 years now.

    • Ranjit Says:

      Okay, 175 years would be more like it. While I’d take issue with the equation of gold and real money, it is true that the U.S. government stopped trying all that hard to pay for its expenditures sometime during the Vietnam War. On the other hand, I measure “credit rating” as the real (inflation-adjusted) interest rate that people require in order to hold U.S. government securities. And that rate actually stayed very low, even trended downward, in the late 1960s despite LBJ’s unwillingness to pay for the war. See the second and third charts below:

      http://www.econbrowser.com/archives/2010/10/negative_real_i.html

      As the charts show, except for the high-inflation-then-disinflation of the early 1980s and the financial crisis of 2008, (ex post) real interest rates on Treasury bills have been consistently quite low, often negative, in the post-Vietnam period.

      But if you choose to define “real” as “relative to gold” rather than “relative to a bundle of goods and services,” then by definition you are correct.

  2. John Milton Says:

    Why does it matter if no other country has it? Last I checked most of Europe is having massive problems because they couldn’t control spending. The ceiling should absolutely stay and only be raised if massive spending cuts are coupled to it.

  3. Raise the damn debt ceiling already « Blogging Through the Wreckage Says:

    […] blogged about this topic before. Not raising the debt ceiling would be like pushing the economy off a cliff. With a deficit of $1.5 […]

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