Beyond Labels

A 360° Discussion of Foreign, National and Local Policy Issues

Feb. 6: U.S. Federal Debt / Ceiling

With the U.S. debt ceiling back in the news, we’ll revisit this topic, together with the overall level of U.S. government debt ($31 trillion) and the deficit spending that increases the debt total.

Among the specific questions we may discuss are:

Debt Ceiling

  • What is it, and how does it work?
  • If increasing the debt ceiling as it is approached is as pro forma as Democrats claim, why do we even have one? What are the downsides to eliminating it?

Federal Debt

NY Times: How the U.S. Government Amassed $31 Trillion in Debt

  • How should we think about the amount of debt incurred (or guaranteed) by the federal government?
  • What’s the “right” level of debt? A common comparative metric is the debt-to-GDP ratio.
  • At an abstract level, which activities should be debt-financed, and which should be pay-as-you-go?
  • How should debt-like obligations, like pensions (or, in the case of the U.S. federal accounts, the bigger items like Social Security and Medicare), be factored into our maximum debt calculus? Here’s an opinion piece on the subject–whether you agree with his views or not, his basic math is (I believe) correct.

Federal Deficits

  • How should we think about federal budget deficits?
  • Do the rules for calculating the fiscal impacts of bills make sense? [See the opinion link to The Hill.)

Does Any of This Matter? (MMT)

There’s a school of thought out there that government debt doesn’t matter, since the government (or Fed) can print money. So it’s OK to run deficits and borrow as long as inflation is under control. This may be a bit esoteric for some, but Modern Monetary Theory generally comes up (at least in recent years) whenever someone expresses concern about our level of debt, so it’s worth understanding the basics. Suffice it to say, there seem to be a lot more MMT skeptics than proponents.

3 Comments

  • Somewhere in the distant past, there was bipartisan commission on the deficit and entitlement reform.
    Support for the 2010 Simpson-Bowles report was bipartisan, as was opposition to it. https://en.wikipedia.org/wiki/National_Commission_on_Fiscal_Responsibility_and_Reform
    This report offers a good jumping off point. All of the numbers are bigger today, but the framework is the same.

  • suzannedoncarmichael

    As I’m reading about this topi, I found two interesting things. 1) Only the U.S. and Iceland have “debt ceilings” (although similar “restraints” exist in other countries) 2) I was astonished to learn that the U.S. primarily uses cash rather than accrual accounting methods. For more on this see: https://www.cbo.gov/publication/53461#:~:text=Currently%2C%20most%20federal%20activities%20are,recorded%20on%20an%20accrual%20basis. I was particularly interested because when my father was head of accounting for the U.S. State Dept. I know that he was changing their accounting method from cash to accrual – although I’m not sure if it applied to all State Dept. line items. I do know that it did apply to U.S. Embassy accounting because he traveled to major embassies around the world to explain and institute the change. In the chart included in our reading materials providing percentages of debt/GDP, I wonder if there was an adjustment so that different countries’ accounting methods were considered. I may be too in the weeds here & its been decades since I had a course in international economics so take my comments with a cellar of salt.

  • Here’s a link to a comparison of current debt-to GDP ratios for all countries:

    https://tradingeconomics.com/country-list/government-debt-to-gdp

    In Europe, only Greece and Italy have higher debt-to-GDP ratios than the US; in Asia, only Japan, Lebanon, and Singapore (!) do; in Africa, only Eritrea, Cape Verde, and Sudan; in the Americas, only Venezuela. On the other hand, a number of countries considered to be economic basket cases (e.g., Belarus, Russia, Haiti) have much lower debt-to-GDP ratios than the US, and some other wealthy countries (e.g., France, Canada, and Bahrain) have debt-to-GDP ratios similar to that of the US. So I’m not sure what, if anything, a country’s debt-to-GDP ratio, by itself, tells up about the health of its economy.


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