Debt ceiling consequences?

Can a nation just keep borrowing money with no limits?

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How the Debt Ceiling Works

If you're curious how much it really costs to run a modern Western superpower, look no further than a fascinating document issued every single day by the U.S. Treasury called the Daily Treasury Statement. The statement is a concise, daily reckoning of exactly how much the U.S. federal government spent that day - rounded off to the nearest million, of course - and how much it pocketed in revenue.

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Are there consequences if the US keeps raising borrowing limits?

By Joe Harker

Just like people, countries can borrow money. Unlike people, countries can get away with not paying back their obligations for centuries.

In 2014 The UK government announced that it would be trying to pay off debts incurred as far back as the 18th century during the crash of the South Sea Company. It may seem ridiculous that a modern government is having to deal with debts incurred three centuries ago but different rules apply to nations than people.

In the US the government is set to borrow around $1 trillion, an 84 per cent increase on last year's borrowing. Senior policy director Marc Goldwein says the US is "addicted to debt" as the Trump administration forecasts it will borrow over $1 trillion in 2019 and $1.1 trillion in 2020. The US has a debt ceiling designed to stop the government debt from getting out of control but they have simply kept raising the ceiling whenever the issue surfaces.

Writing for CNBC, Pete Boockbar calls the debt ceiling "worthless" as it is just raised every time the US national debt gets close to the limit. If it does nothing to stop the US government from borrowing money and trying to tackle the national debt then it isn't really doing anything at all. While initially a measure for the government to bypass seeking approval for each round of borrowing so long as it was within agreed limits, it is now a boundary to shuffle ever upward to accommodate the rising national debt. Like a speed limit that is always a few mph above the fastest car on the road it's not actually a limit at all.

If US debt crosses the limit before the government can agree to raise it that causes a default on debt, something nobody wants. President Trump believes there are "a lot of good reasons" to get rid of the ceiling entirely, essentially meaning the US can borrow as much as it likes. The ceiling is popular with the US public though, as many see it as a sensible financial control and don't like the idea of the government getting into more debt.

Scrapping the ceiling may have the consequence of removing any discipline in the government when it comes to borrowing. If there is no limit to borrowing then it may be seen as a more viable solution to secure even more funding. While it functionally does nothing to stop the US borrowing more money it may still limit them from raising borrowing to ridiculous amounts.

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