Over the past several years, it has become a something of a tradition for the Congress and President to claim that the federal government will not be able to pay its bills unless the debt ceiling is raised. In fact, the debt ceiling has been increased, or suspended, a total of seventy-nine times since 1940.
However, the United States government, which has had a national debt since it was created (with the exception of 1835) did not always have a debt ceiling, which should actually be called a money pit.
Prior to 1917, any debt accrued by the federal government would need to be specifically approved by the Congress. The initial debt ceiling, passed in the Second Liberty Bond Act, was set at $9.5 billion in Treasury bonds and $4 billion in one-year certificates. This removed some of the Congressional oversight from the Secretary of the Treasury.
Until 1939, when Congress created an overall aggregate limit on the national debt, increases in the national debt were simply amendments to the Second Liberty Bond Act.
The national debt now stands at approximately $17 trillion, with the debt ceiling being completely eliminated until March 2015.
So, why is the federal government so far in debt?
Some people make the claim that the debt ceiling has to raise to continue the system because money is created out of thin air by the Federal Reserve and loaned out to the government with interest. The government must take out a new loan to cover the costs, putting the system further into debt.
Because the money is debt.
The problem is central banking, and until that goes away, this will keep happening because “that is what’s supposed to happen.”
While I am no supporter of central banking, this claim ignores the fact that the federal government was in debt before the federal reserve was created, the federal government was in debt before the US Treasury began issuing paper currency, and the federal government was in debt even before George Washington was inaugurated.
The United States government remains in debt not because of a central bank, as Tom Knapp points out, “The Congressional Budget Office estimates that for fiscal year 2014 the US government will spend $514 billion more than it steals in tax revenue.
But that government could cut its military spending by $514 billion and still be the third largest ‘defense’ spender in the world (behind only Russia and China).”
The United States government remains in debt because the Congress will not pass and the President will not sign a balanced budget, because they fear being seen as not supporting the troops.
They won’t do this because they don’t have to.
The problem is that the people making the spending decisions are not on the hook to pay for the costs!