Living on the debt ceiling precipice

The world is watching and waiting whether the US Treasury will default. Why are we in this state? Simple, in the long-run, the US government through the President and Congress saw fit to have a check on government indebtedness, the debt ceiling. The debt ceiling is the maximum allowable debt that can be outstanding by the Treasury. It places a constraint on the government from over-spending beyond the amount of taxes raised. It is a constraint to stop the government from the excess of trying to provide all things to the populous. Perhaps it would make more sense to make this a percentage of GDP, or some other relative measure but that is not what is being discussed. Now that it is binding, the president would like to take away the constraint. Other would like to maintain the constraint. It does not matter what commitments were made, the debt ceiling is there to stop excessive debt. It is a law that is contradictory but placed on the books for a reason.

It is a check on behavior no different than any check we place on our own personal behavior. It serves as a budget constraint. There has been little talk of complete elimination of the debt ceiling just a rise so it will not be binding on any current administration. This is not different than personal behavior that would like the appearance of constraints just not binding ones.

Perhaps the debt ceiling actually  gives some investors more faith in the US government. The faith is destroyed if we always increase the ceiling when it becomes binding.

Is it crazy that we have to play brinkmanship to have a discussion of finances? Absolutely, yet I think it really does a good job of focusing discussion on debt and budget issues. So how much is too much debt? The president and Congress will not say. What should be funded as a necessity versus passed on as a luxury? No one will say. Everything is necessary in the US government world. There are no choices of scarce resources. There are no constraints. There is no use of the word"No".

This will change the US's standing in the global financial world. This cannot be helped. Our standing will still fall if we raise the ceiling because our debt levels are too high and we are not growing fast enough. This ceiling problem just focus the discussion that we still do not want to have. The rest of the world does not want to have us engage in an discussion of US finances. They just want more aggregate demand,