What is the real purpose of the “debt ceiling”?

It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders.

If  you go to Wikipedia’s History of United States Debt Ceiling, you will read these words:

Depending on who is doing the research, it is said that the US has raised its debt ceiling (in some form or other) at least 90 times in the 20th century.

The debt ceiling has been raised 74 times since March 1962, including 18 times under Ronald Reagan, eight times under Bill Clinton, seven times under George W. Bush, and five times under Barack Obama.

In practice, the debt ceiling has never been reduced, even though the public debt itself may have reduced.

In total, the debt ceiling has been increased an average of about once a year, for the past hundred years, and never reduced. (The Wikipedia site provides a long table showing debt ceiling increases.)Image result for low ceiling

So what is the purpose of the debt ceiling?

The federal government is Monetarily Sovereign, meaning it has the unlimited ability to pay its creditors. Tax dollars are not used. Brand new dollars are created every time the federal government pays a bill.

So, what is the purpose of the debt ceiling?

The federal “debt” is not actually a debt as you know it. By the time something has been classified as a “debt,” the creditors already have been paid. The so-called “debt” actually is the total of deposits in T-bill, T-note, and T-bond accounts.

These accounts store the dollars invested in them. Those dollars remain in the accounts, and are not used for anything. Upon the maturity of the T-securities, the dollars in these accounts are transferred to the checking accounts of the T-security holders. At that time, no new dollars are used or needed. “Paying off” the so-called “debt” is a simple money-transfer.

Upon the maturity of the T-securities, the dollars in these accounts are transferred to the checking accounts of the T-security holders. At that time, no new dollars are used or needed.

“Paying off” the so-called “debt” is a simple money-transfer from one account to another. Receiving the payment for your T-security maturity is like writing a check to yourself.

Image result for write a check to yourself
Receiving the payment for your T-security maturity is like writing a check to yourself.


So what is the purpose of the debt ceiling?

Congress arbitrarily sets each debt ceiling. But Congress (together with the President) is in charge of federal spending. Effectively then, the debt ceiling set by Congress is a limitation on dollars already budgeted and spent by Congress.

The left hand attempts to reduce the spending already done by the right hand.

So what is the purpose of the debt ceiling?

Because of the peculiarities of federal bookkeeping, the federal “debt” equals the total of all federal deficits and surpluses in history. Thus, the debt ceiling is an attempt to rewrite history so as to reduce past deficits!

Further, federal deficits add dollars to the economy;  they are the economic surpluses that stimulate economic growth. All depressions and most recessions have come on the heels of reductions in federal deficit growth.

So what is the purpose of the debt ceiling?

From CNBC, today:  Mitch McConnell: ‘Zero chance’ US fails to raise the debt ceiling

  • Senate Majority Leader Mitch McConnell says there is “zero chance” the U.S. government will fail to raise the debt ceiling.

Once again Congress will raise the debt ceiling.

  • Treasury Secretary Steven Mnuchin wants Congress to lift the borrowing limit by the end of September.

The so-called “borrowing limit” is not a limit to what the federal government can borrow. Being Monetarily Sovereign, the federal government has no need to borrow and, in fact, does not borrow.

Obviously, those T-securities do not provide dollars to a government that has the unlimited ability to create dollars. The purpose of T-securities is:

  1. Provide a secure investment for those who want one.
  2. Provide a basis for interest rate control of inflation.

So what is the purpose of the debt ceiling?

Think of an employer promising his employees a Friday paycheck for work done during the week.

But one Thursday he says, “I’ve set a limit on all the pay you have received since you were hired, so for me to be fiscally prudent, from now on, you’ll have to pay me the amount of your Friday checks.”

Think about it. Make sense?

Not only would that cheat employees out of money they already have earned, but it would preclude any future work.

The debt ceiling has no functional purpose. It is a political fake, a fraud, an illusion, a lie perpetrated by a Congress that already has all the spending control it needs via the budgeting process.Image result for self control

It originally was dreamed up by those who felt Congress had lost control over its ability to pay its bills, so it needed some sort of limitation, however senseless, on its spending urges.

But since 1971, the end of the last gold standard, Congress has had the unlimited ability to pay its bills.

Subsequently, the purpose of the debt ceiling has been co-opted by:

  1. Libertarians, who have a visceral hatred of the federal government, and will back any plan to reduce the size of the government, regardless of the damage this causes America.
  2. Right-wingers who want to reduce social spending in order to widen the Gap between the rich and the rest of us.
  3. Left wingers who wish to appear fiscally prudent.

Yes, the debt ceiling has no functional purpose, and being increased every year, has almost no political purpose.

Yet Congress will waste thousands of well-paid hours, battling, horse-trading, arguing and excusing to their constituents, this silly, meaningless process.

The debt ceiling should be eliminated. It has as much value as does ripping up the losing ticket to yesterday’s lottery.

Tell your Congresspeople to cut out the BS, and to begin earning the salary and perks they have been given.

Rodger Malcolm Mitchell
Monetary Sovereignty


The single most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-less.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.


2 thoughts on “What is the real purpose of the “debt ceiling”?

  1. Saying that debt reduction is what caused depressions is like saying the headache and nausea caused hangover.

    A reduction of debt during a depression is a result of the depression itself, not the cause.

    You also assume that it’s ok for debt to grow since we haven’t had an all out collapse. Yet in the same post you complain about recessions, depressions and poverty.

    Isnt it obvious that the cause of these is the increase in debt? It should be..


  2. If you were correct, the result would have preceded the cause:

    1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
    1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
    1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
    1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
    1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
    1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
    1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
    1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

    Debt grows as a result of deficit spending which adds stimulus dollars to the economy.

    I know of no mechanism by which federal debt can cause recessions and depressions, and in fact, virtually all recessions and depressions have been cured by increases in deficit spending.


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