The Dangers of Debt
April 28, 2023
In his novel 1984, George Orwell(Eric Blair) noted that there are four ways in which a government could lose its power. The first of which is subjugation by a foreign power. The second is a situation in which the general populace revolts. The third is when a powerful and discontent middle class with the ability to overturn the establishment forms. The final is when the government loses its capacity to energetically govern.
Orwell, like anyone who had lived and died before this past decade, would likely not see National Debt as a reasonable mechanism from which a nation as powerful as the United States could possibly topple. In modern 21st- century America, failure to raise the debt ceiling poses a clear and present threat to the stability of our democracy.
The United States and many other modern nations spend more than it has. Programs such as coronavirus relief, stimulus packages, tax cuts, defense spending, infrastructure bills, and other big-ticket items inevitably lead to billions of dollars in deficit per year. In other words, American taxpayers alone are unable to fund government expenditures. Thus, to cover the shortage, the government must borrow money from private entities, foreign investors, the Federal Reserve, and other sources. The United States has held public debt since its inception as the first major expenditures were incurred during the American Revolutionary War. Except for a short stint between 1835 and 1836(under Andrew Jackson’s presidency in which all US debt was repaid), the United States has continuously had a positive public debt.
There exists a statutory limit that the government can not go over in terms of the amount the government can borrow. Currently, the debt ceiling is $31.4 trillion US dollars and was surpassed in January of this year. However, due to “extraordinary measures” taken by the Department of the Treasury, spearheaded by Janet Yellen, no consequences will be realized until June of this year, assuming no action is committed by the legislature.
The concept of a debt ceiling was created in 1917 when it became necessary, in light of Great War expenditures, to regulate the amount the government is allowed to borrow. It is important to note that the debt ceiling itself does not constitute a spending bill but merely allows the government to fund what has already been approved by Congress. The debt ceiling is commonly analogized to the country “paying its bills.” Before 2011, the debt ceiling had been routinely raised without debate or negotiations whenever necessary(except for a brief shutdown in 1995). However, during the 2011 debt ceiling crisis, the debt ceiling was raised under the condition that budget cuts be made under the Budget Control Act of 2011.
Today, we are facing a very similar political situation in which the debt ceiling can not be raised without executive concessions. Were the United States to exhaust its arsenal of “extraordinary measures,” a number of events could ensue.
The nation may enter a full or partial government shutdown in which all or portions of government functions are halted indefinitely. The United States could alternatively stop paying the institutions which provide the government with services, which could result in a global financial crisis. Finally, a default could occur, in which the government effectively declares to bondholders that their loans will not be repaid. This is, by far, the worst possible scenario and may leave lasting economic impacts for generations to come.