Debt ceiling should never have been used as a weapon

  • Article by: MYLES SPICER
  • Updated: August 2, 2011 - 2:51 PM
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Steve Sack editorial cartoon for July 28. Subject: Debt ceiling debate in Congress. Featured: Speaker of the House John Boehner being held captive by the Tea Party.

Photo: STEVE SACK, Star Tribune

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The debt-ceiling crisis that has been roiling the nation is an absurdity that has no rational basis. It should never have happened, and steps must be taken to prevent it from occurring ever again.

For those who think the debt-ceiling mandate is some kind of constitutional or traditional phenomenon ... it is not. For those who think it is a sacrosanct part of American history ... they are wrong.

In fact, it dates from 1917, has no basis as a constitutional component and is a bit of an anachronism in terms of other industrialized nations. Few, if any, have such an arbitrary limit on debt, and most have systems that are far more effective and less dangerous.

And why is our debt-ceiling law dangerous? Precisely because of what has just happened (and why). It was not used to initiate rational fiscal policy, but to hold hostage the nation's legitimate debts to a far-right agenda, mostly regarding taxation policy.

And as long as it is on the books, it is a continuing potential threat to the full faith and credit of the United States.

Moreover, the debt-ceiling limit is largely irrelevant, because until now it has always been voted and extended without serious confrontation and little discussion. That includes 30 times since 1980, and virtually every year that President George W. Bush was in office.

The statutory limit on federal debt began with the Second Liberty Bond Act of 1917, which helped finance the United States' entry into World War I. By allowing the Treasury to issue long-term Liberty Bonds, along with a debt ceiling, the federal government held down its interest costs.

The government was still allowed to issue bonds for specific projects (like the Panama Canal) until 1939, when Congress eliminated separate limits on bonds and on other types of debt, which created the first aggregate limit that covered nearly all public debt.

Since then, however, the statutory debt limit was pretty much irrelevant and on cruise control -- until it became a danger to our country this year.

But the danger now goes beyond conservatives simply refusing any tax increases (at both the federal and state levels); the far right has also made demands on a variety of other issues -- abortion, gay rights, budget amendments and smaller government, to name a few -- to allow passage of raising the debt-ceiling.

Thus, it has become an instrument of social and political change, for which it was never intended, and it is paralyzing effective governance of our country. As one political pundit recently said: "It's like going to poker game and putting a revolver on the table."

One vital organization that agrees with this position is Moody's Rating Service. In a recent report, it noted that the divisions between the House of Representatives and the Obama administration over the debt limit were "creating a high level of uncertainty" and causing the agency "to raise our assessment of event risk."

Those politicians who complain that creating new jobs is exacerbated by "uncertainty" in this economy should take notice.

Tea Party politicians introduced legislation to legislate a quasi-permanent debt ceiling with a balanced budget amendment to the Constitution. Dan Coates, junior senator from Indiana, was one.

In introducing such legislation, he said: "This vote represents a unique opportunity to right a wrong and begin restoring our fiscal house by making Congress accountable for its spending. If American families have to sacrifice to make ends meet, they should expect the same from their government."

His comments are telling, for two reasons. First, the U.S. government is not a "family," nor does it have any relationship to family finances.

And second, if it did, I doubt any family would agree to have a "debt ceiling" placed upon it. It would make getting mortgages and buying cars virtually impossible.

A better answer lies in the way most other industrialized nations deal with their debt. Other countries with a AAA credit rating (like the United States) include Germany, France, Switzerland, Britain, Canada and Australia -- none of whom have arbitrary debt-ceiling limits as we do.

Their budgeting process is so simple and intelligent that it defies long description. They merely agree on a fiscal budget that will best serve their nations in the coming year.

Experts -- including former Office of Budget and Management and Treasury officials, CBO analysts, and economists -- have suggested replacing the debt ceiling with debt targets for lawmakers to work under, as used by other well-run countries.

Targets could be implemented by, for example, measuring debt in relation to the overall size of the economy, such as in a debt-to-GDP ratio, and taking into consideration whether the economy is in a period of expansion or contraction.

But, what is not needed at all is our current debt-ceiling law.

It has become a tool of dangerous mischief, uncertainty and needless political gamesmanship in our current fragile economic scene. Its abuse should never have happened, and must not be allowed to happen again.

Myles Spicer is a retired ad agency owner in Minnetonka.

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