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The debt ceiling fiasco is a purely manufactured crisis. There is no rational, economic reason for the crisis. It is 100% political theater based on ignorance, dishonesty and misunderstanding of how government finances actually work. It is an ideological, political power struggle. Threatening a U.S. government default over the debt ceiling is stupid, reckless and dangerous. But Republicans are quite willing to risk disaster to advance their political agenda.

The news media, as usual, is too busy reporting on the controversy to actually inform the public about these issues. Many news stories are inaccurate, misleading and lack perspective or historical context.

This article looks at some facts regarding the debt ceiling, deficit spending, government finance and the real causes of our financial problems.

One frequent, inaccurate statement is that Congress failing to increase the debt ceiling will result in the government “defaulting” on the debt. This is not true. The debt ceiling has nothing to do with paying the government's bills. The debt ceiling is like a maximum limit on the government's credit card. Like with your credit card, when the limit is reached the government can not borrow any more. Default occurs when you can't make the payments on your debt, not when you are cut off from borrowing more.

The government has many options to continue meeting its obligations to bond holders and paying its bills regardless of what happens to the debt ceiling. As has happened in the past, failure to increase the debt ceiling will likely result in a government “shutdown.” But this is not a default on the government's debt obligations. Many “non-essential” government functions will stop operations (and spending). Some expenditures will be delayed or canceled. Funds will be shuffled from “non-essential” activities to meet the “mandatory” payments like the debt. The government can also simply create (“print”) money to pay its bond obligations as it has done in the past to fund bailouts and wars.

Likewise, failing to raise the debt ceiling has nothing to do with deficit spending, social programs, or reducing the size of government. Politicians and media pundits falsely claim that raising the debt ceiling will result in more government spending. The debt ceiling does not create budget deficits. Congress does. Budget and spending deficits occur when expenditures exceed income. Borrowing is a logical way to fill that gap but it is not the cause of deficits.

One major cause of deficits is lack of revenues and not excessive spending. Cuts to Individual and corporate income taxes enacted by Republicans (often with Democratic support) are the largest contributor to the total national debt. The Reagan, Bush and Trump administrations created large annual deficits and greatly increased the total national debt with tax cuts. Republicans also support revenue loss with “tax expenditures” (like the popular mortgage deduction), corporate subsidies, tax avoidance loop holes and failure to go after tax cheating.

Another major cause of deficits and national debt is war and excessive military spending. War related spending dwarfs all other federal discretionary expenditures. This spending is full of “non-essential” pork that could easily be cut.

The U.S. Treasury website says, “Notable recent events triggering large spikes in the debt include the Afghanistan and Iraq Wars, the 2008 Great Recession, and the COVID-19 pandemic. From FY 2019 to FY 2021, spending increased by about 50%, largely due to the COVID-19 pandemic. Tax cuts, stimulus programs, increased government spending, and decreased tax revenue caused by widespread unemployment generally account for sharp rises in the national debt” (link below).

Until recently increasing the debt ceiling was a routine event. The Washington Post says since 1960 Congress has changed the debt ceiling 78 times. The ceiling was raised three times during the Trump administration. It is ridiculous and hypocritical for current Republicans to be holding the country and the economy hostage over unreasonable demands to cut some social spending.

It should be noted that debt is a normal practice. The U.S. has had debt throughout its entire existence. National debt is actually necessary and good. According to the Treasury website, “The national debt enables the federal government to pay for important programs and services for the American public.” The debt pays for goods and services that fuel the economy. The securities that are the debt are owned by people, retirement programs and many businesses and investors. Deficit spending and debt are major economic tools used to combat recessions and maintain employment.

National debt is like the revolving line of credit necessary to many businesses. The U.S government is continuously issuing new securities and retiring bonds that have matured while paying interest on existing bonds.

In fiscal year 2022, the total accumulated national debt was $31 trillion. The average interest rate paid was 2.07% (not a bad rate). It cost $460 billion to maintain the debt, which was 13% of the total federal spending.

Social Security payments are not affected by the debt ceiling. Social Security is paid from a trust fund (not the regular federal payment process) and not part of deficits or the national debt. In fact Social Security is the largest investor in Treasury securities.

The outcome of the debt ceiling controversy is not known but one thing is certain. Republican scare tactics are not based in fact. But their actions do have the potential to create economic chaos and serious hardships for many people. If a government shutdown occurs people will lose jobs, vital social support services and some businesses will close. Many people, small and large businesses, farmers, government contractors, and other users of “non-essential” services will be harmed.

The Republican game of chicken over the debt ceiling is simply stupid and these extremists should not be allowed to crash the economy or destroy the credit rating of the government. Economist Robert Reich agrees. In the article linked below he offers his advise, “The president should continue paying the government’s bills and the United States must never default. If McCarthy and his band of right-wing Freedom Caucus radicals don’t like this, let them take the Biden administration to court.” I agree.

Sources and additional reading:

U.S. Treasury tutorial on these topics, https://fiscaldata.treasury.gov/americas-finance-guide/

“The Debt-Ceiling Debate Is a Farce, But Fiscal Policy Is a Fiasco,” by business CEO and consultant Paul Shotton, https://www.financialpoise.com/debt-ceiling-debate/

“America’s Wars and the U.S. Debt Crisis,” economist Jeffrey Sachs in Common Dreams

https://www.commondreams.org/opinion/military-spending-debt-crisis

“Message to Biden: Stop Negotiating With GOP Economic Terrorists,” economist Robert Reich in Common Dreams, https://www.commondreams.org/opinion/biden-mccarthy-debt-limit-economic-terrorism