Another year, another debt ceiling debate. I think it’s been over 10 years since I first talked about how ridiculous this all is. For those of you who have been paying attention all that time – you know the story. The way this works is simple:
- Congress establishes a “debt ceiling”, a fake limit on how much national debt we can issue.
- Then Congress approves legislation that will require new debt in the future.
- That new legislation causes a breach of the debt ceiling.
- Congress pretends they’re going to default and grandstand about the national debt. They shutdown the government for a week or two.
- Then the debt ceiling gets raised because past legislation forces Congress to raise the debt ceiling or default.
- Rinse, wash, repeat.
This is obviously a ridiculous sequence of events. I’ve compared it to tying a knot in your stomach, then eating a huge meal, then threatening yourself with death if you don’t untie the knot.
In the past, reasonable people used to respond to me about this by claiming that the debt ceiling helps remind us of the need to be more fiscally prudent. But I think we all know that’s just a big load of crap now. Trump added $8T to the national debt. Who knows how much Biden is going to add. These politicians don’t actually care about the national debt. And the debt ceiling isn’t instilling any discipline in the way we manage the national debt. Instead, it’s just creating an annual charade, causing unnecessary shutdowns and uncertainty around the bond market.
The USA is one of a handful of countries with a debt ceiling. It’s a silly policy that doesn’t limit anything and only results in the risk of default and unnecessary government shutdowns. It makes no sense to have this fake “limit” in place. That’s why I believe it’s time to eliminate the debt ceiling. Permanently.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.