The Debt-Ceiling Fiasco That Isn’t Over Yet

The deal to raise the debt ceiling approved by Congress in late May and early June ended the financial crisis that could have triggered a potential default and a possible collapse of the U.S. economy.

But don’t think that the debt-ceiling fight is over. It has just been kicked down the road – once again.

The legislation Congress passed suspends the $31.4 trillion federal debt limit until January 2025, when Congress will once again be forced to raise the debt ceiling. At that point, we will be back where we were in May, when Treasury Secretary Janet Yellen announced that the federal government was running out of money to pay its bills.

Since 1960, the federal government has raised the debt limit 78 times to meet its financial obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt and other payments.

So why does Congress keep returning to the same political battle over the debt limit and why do we even have a debt ceiling?

The Origin of the Debt Limit

The history of the debt ceiling dates back to 1917, when Congress changed the way it authorized the borrowing of money.

Before then, Congress directly authorized each debt it issued. But when the U.S. became involved in World War I, Congress wanted to finance the country’s participation in the war by issuing war bonds. To appease legislators who opposed adding debt or even entering the war, Congress passed a bill that established a limit on the total amount of new bonds that could be issued.

The bonds the government issued were called Liberty Bonds, and they raised $21.5 billion for the country’s war efforts. Today, government bonds are called Treasuries, and they are the mechanism that allows the government to borrow money.

Treasuries are sold to investors who find them appealing because they make interest payments twice a year and have a AAA credit rating, which investors view as low-risk.

They also are attractive to investors because they can easily be converted into cash. Treasury notes, for example, mature in 2, 3, 5, 7 or 10 years.

The Rising National Debt

The reason the debt-ceiling problem keeps coming back is because the federal government’s deficit keeps growing. The federal deficit is the result of the government spending more money than it raises through taxes and other fees. To pay its bills, the government must sell Treasuries and also pay the interest on the bonds to investors.

In 2022, the federal government raised $5 trillion in taxes, but spent $6.5 trillion on government programs. An estimated 75 percent of that spending went to Medicare, Social Security, defense and veterans, transfers to states, subsidies to the poor and refundable tax credits.

That left a $1.5 trillion deficit that the government must make up by issuing debt, which brings us back to the debt ceiling.

While the deal to raise the debt limit included some cuts to government spending, it will probably not make a significant dent in the deficit. Instead of refusing to deal with the cause of the problem, it is my opinion that Congress must get serious about cutting government spending and move toward a balanced budget so that the debt ceiling problem will not continue to threaten the health of our economy.

Cutting the deficit, it seems, is not the number one issue for the average voter. But I feel it’s time that we all start to pay attention to the federal debt and insist that Congress do something to balance the budget. Until that happens, we will likely continue replaying the debate on the debt ceiling and bringing the economy to the brink over and over again.