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posted on 26 August 2017

What Is The Real Purpose Of The "Debt Ceiling"?

by Rodger Malcolm Mitchell, www.nofica.com

If you go to Wikipedia's History of United States Debt Ceiling, you will read these words:

Depending on who is doing the research, it is said that the US has raised its debt ceiling (in some form or other) at least 90 times in the 20th century.

The debt ceiling has been raised 74 times since March 1962, including 18 times under Ronald Reagan, eight times under Bill Clinton, seven times under George W. Bush, and five times under Barack Obama.

In practice, the debt ceiling has never been reduced, even though the public debt itself may have reduced.


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In total, the debt ceiling has been increased an average of about once a year, for the past hundred years, and never reduced. (The Wikipedia site provides a long table showing debt ceiling increases.)

So what is the purpose of the debt ceiling?

The federal government is Monetarily Sovereign, meaning it has the unlimited ability to pay its creditors. Tax dollars are not used. Brand new dollars are created every time the federal government pays a bill.

So, what is the purpose of the debt ceiling?

The federal "debt" is not actually a debt as you know it. By the time something has been classified as a "debt," the creditors already have been paid. The so-called "debt" actually is the total of deposits in T-bill, T-note, and T-bond accounts.

These accounts store the dollars invested in them. Those dollars remain in the accounts, and are not used for anything. Upon the maturity of the T-securities, the dollars in these accounts are transferred to the checking accounts of the T-security holders. At that time, no new dollars are used or needed. "Paying off" the so-called "debt" is a simple money-transfer.

Upon the maturity of the T-securities, the dollars in these accounts are transferred to the checking accounts of the T-security holders. At that time, no new dollars are used or needed.

"Paying off" the so-called "debt" is a simple money-transfer from one account to another. Receiving the payment for your T-security maturity is like writing a check to yourself.

Image result for write a check to yourself

Receiving the payment for your T-security maturity is like writing a check to yourself.

So what is the purpose of the debt ceiling?

Congress arbitrarily sets each debt ceiling. But Congress (together with the President) is in charge of federal spending. Effectively then, the debt ceiling set by Congress is a limitation on dollars already budgeted and spent by Congress.

The left hand attempts to reduce the spending already done by the right hand.

So what is the purpose of the debt ceiling?

Because of the peculiarities of federal bookkeeping, the federal "debt" equals the total of all federal deficits and surpluses in history. Thus, the debt ceiling is an attempt to rewrite history so as to reduce past deficits!

Further, federal deficits add dollars to the economy; they are the economic surpluses that stimulate economic growth. All depressions and most recessions have come on the heels of reductions in federal deficit growth.

So what is the purpose of the debt ceiling?

From CNBC, last week: Mitch McConnell: 'Zero chance' US fails to raise the debt ceiling

  • Senate Majority Leader Mitch McConnell says there is "zero chance" the U.S. government will fail to raise the debt ceiling.

Once again Congress will raise the debt ceiling.

  • Treasury Secretary Steven Mnuchin wants Congress to lift the borrowing limit by the end of September.

The so-called "borrowing limit" is not a limit to what the federal government can borrow. Being Monetarily Sovereign, the federal government has no need to borrow and, in fact, does not borrow.

Obviously, those T-securities do not provide dollars to a government that has the unlimited ability to create dollars. The purpose of T-securities is:

  1. Provide a secure investment for those who want one.
  2. Provide a basis for interest rate control of inflation.

So what is the purpose of the debt ceiling?

Think of an employer promising his employees a Friday paycheck for work done during the week.

But one Thursday he says, "I've set a limit on all the pay you have received since you were hired, so for me to be fiscally prudent, from now on, you'll have to pay me the amount of your Friday checks."

Think about it. Make sense?

Not only would that cheat employees out of money they already have earned, but it would preclude any future work.

The debt ceiling has no functional purpose. It is a political fake, a fraud, an illusion, a lie perpetrated by a Congress that already has all the spending control it needs via the budgeting process.Image result for self control

It originally was dreamed up by those who felt Congress had lost control over its ability to pay its bills, so it needed some sort of limitation, however senseless, on its spending urges.

But since 1971, the end of the last gold standard, Congress has had the unlimited ability to pay its bills.

Subsequently, the purpose of the debt ceiling has been co-opted by:

  1. Libertarians, who have a visceral hatred of the federal government, and will back any plan to reduce the size of the government, regardless of the damage this causes America.
  2. Right-wingers who want to reduce social spending in order to widen the Gap between the rich and the rest of us.
  3. Left wingers who wish to appear fiscally prudent.

Yes, the debt ceiling has no functional purpose, and being increased every year, has almost no political purpose.

Yet Congress will waste thousands of well-paid hours, battling, horse-trading, arguing and excusing to their constituents, this silly, meaningless process.

The debt ceiling should be eliminated. It has as much value as does ripping up the losing ticket to yesterday's lottery.

Tell your Congresspeople to cut out the BS, and to begin earning the salary and perks they have been given.

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