By: Ayaan Kalavar
The United States’ debt ceiling is an economic structure that has been put in place to help manage the nation’s debt, and it has usually only been raised every three to five years, aside from years of unusual economic hardship like the Great Depression in the late 1920’s, the Housing Crisis in 2008, and instances of war. But, in this current day and age, the United States’ debt is growing at an abnormal rate, so much so to the point that this new debt ceiling is only meant to sustain the country for the next one to two years. The debt ceiling also serves as a means of providing insight for the U.S. on how to better budget its spending. The country, however, has not made any budgeting corrections, which has led to many close calls which would not only cause inimical harm to the national economy (with particular respect to the job market), but also to the global economy. The magnitude of effects could even be as severe on the global economy as they would be in the United States since the country is a major contributor and an overall power house within the global macroeconomy.
History of The Problem
The debt ceiling was created by Congress in 1917 for the purpose of creating a limit on the amount of debt that the U.S. government could bring upon itself so that it could meet preexisting legal obligations. Specifically, the tool was created by Congress in the broader context of the Second Liberty Bond Act – an act that established a $15 billion dollar limit on the number of government bonds, allowing for an additional $3 billion of federal bonds to mature for 25 years. These funds were created with the purpose of streamlining the financing of World War I mobilization efforts; the first debt ceiling was put in place to give the Treasury the power to borrow without having to first seek out Congressional approval.
In the early to mid 1900’s when the debt ceiling was created, there were wars, political issues, and economic crises which caused the United States to become more involved in foreign affairs. This ultimately resulted in the excess accumulation of new, fast-growing debt. In World War II, the debt was growing uncontrollably, which prompted the ceiling to be raised almost every year. These times of hardship, however, ultimately allowed for the war debts to dissipate. This eventually led to economic stability in the United States for the coming years and led to an eight-year period wherein the debt ceiling was not raised.
The Current Day Issue and the Future
The United States currently has an out of control and overall unsustainable budgeting plan where they are spending upwards of $1 trillion more than the amount they receive as revenue (including taxes and other sources of revenue) since 2001, and the Treasury is still expanding on this spending. In the past two decades, the United States has accumulated about 80% or $25 trillion of their overall $31.4 trillion of debt. The Treasury has resorted to borrowing money and taking loans in order to finance the payments that already have the approval of Congress which creates a cycle of debt. Everytime the United States hits their limit, the federal government will not have enough money to pay all of their obligations, and the only way to prevent this is Congress raising the limit. This only fuels the fire, since there are no changes other than the amount of debt that the government can amass.
With the current debt growing at the rate it has been at for the past couple of decades; the federal government is getting into the territory of being near defaulting (not being able to repay their debts), which would not only cause domestic economic issues that the Great Depression or Economic Crash of 2008 would be incomparable to, but also completely destroy the global economy and cause a plethora of issues since the United States is one of the most important driving forces of economic stability for the world. Some of the ruinous effects would be global trade being dismantled, since many resources and companies reside in the United States, which leads into the point that the job outlook would also be shattered due to many of these companies not being able to take out loans, since there is no collateral to back up banks. Including that, all investments such as real estate, bonds, and stock would be worthless due to mass inflation, which would not only make money nearly worthless but also lead to the downfall of these important and powerful companies in another way by diminishing their value.
Moving into the future, the federal government needs to budget their finances better and also spend money that they have rather than continuously borrowing and creating a cycle of debt, so they can promote a sustainable domestic economy and help maintain global economic security.