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Chat GPT knows way more about federal debt than Congress, the media, and many economists do.

I asked ChatGPT a few questions about federal debt and was pleasantly surprised by its answers. It seems to have a far better understanding than many of our Senators, Representatives, President, economists, and even some friends and family.

Here is the conversation:

RM: Regarding the debt limit, when people speak of “federal debt,” what are they referring to?

ChatGPT: When people talk about federal debt, they mean the total amount the U.S. Treasury owes to holders of Treasury securities (bills, notes, bonds, savings bonds, TIPS, etc.). Bottom line: federal debt = all outstanding Treasury securities, whether owned by the public or government accounts.

RM: What is the purpose of Treasury Securities? ChatGPT: 

1. Safe place to store money

Treasury bills, notes, and bonds are considered the safest financial assets in the world. Individuals, banks, pension funds, insurance companies, and foreign governments buy them as a guaranteed way to hold dollars and earn a bit of interest.

For big investors, they function almost like a savings account at the Fed.

2. Primary tool of monetary policy

The Federal Reserve uses Treasuries to manage interest rates and the money supply. When the Fed buys Treasuries, it pumps bank reserves (money) into the system. When it sells Treasuries, it drains reserves out.

This is how the Fed controls the federal funds rate and, by extension, credit conditions in the economy.

3. Accounting mechanism for government spending

Since the U.S. is monetarily sovereign (it creates the dollar), the government doesn’t need to borrow its own currency to spend. But, Congress has set it up so that when the government spends more than it taxes, the Treasury issues securities equal to the shortfall.

In practice, this just converts reserves (bank dollars) into Treasuries — swapping one form of government liability for another.

Key point: Treasuries don’t “fund” the government the way a household borrows. The U.S. can always create the dollars it owes. Instead, Treasuries exist to:

-provide a risk-free asset for savers,

-give the Fed a tool to steer the economy, and

-comply with Congress’s self-imposed rules on deficit spending.

RM: Why is there a debt limit?

1. Historical accident

Before 1917, Congress had to approve each individual bond issue to cover spending. During World War I, that became unworkable, so Congress gave Treasury more flexibility: it could issue debt as needed, but only up to a set ceiling.

That ceiling — the debt limit — was meant as a convenience, not a constraint on whether the U.S. could pay its bills.

2. Symbolic “fiscal discipline”

Supporters say the limit is supposed to force Congress to pause and consider federal spending and borrowing levels. In practice, however, it doesn’t control deficits at all. Those are determined by tax and spending laws already passed.

The debt limit just controls whether Treasury can pay obligations it already owes.

3. Political leverage

Because not raising the limit risks a technical default, it has become a bargaining chip in partisan battles.

Each time the ceiling is reached, opponents of the administration often use it to demand spending cuts or other concessions.

4. Why it doesn’t make economic sense

The U.S. is monetarily sovereign. It issues the dollar, so it can always meet dollar-denominated obligations. The debt ceiling creates artificial “default risk” that doesn’t exist economically — only legally.

Most other advanced countries don’t have a separate debt ceiling. They control deficits through the normal budget process.

So the purpose of the debt limit is political signaling, not financial necessity.

RM: What would happen if we abolished the debt ceiling?

ChatGPT: If the debt ceiling were abolished, here’s what would change — and what wouldn’t:

🔹 What would change

    1. No more periodic crises
      • Treasury could always issue securities (bonds, notes, bills) as needed to match whatever spending Congress already approved.
      • No more last-minute showdowns about “default” every year or two.
    2. No artificial risk of default
      • The U.S. would continue to pay interest and redeem maturing securities without interruption.
      • Global markets would lose the recurring fear that Congress might deliberately block payment on America’s own obligations.
    3. Political fights move to the budget process
      • Debates over deficits and spending would happen where they belong: when tax and spending laws are written.
      • The debt limit would no longer be a hostage-taking device after the fact.

🔹 What would NOT change

    1. Deficits would still exist
      • If spending exceeds tax revenue, Treasury would still issue new securities. That’s just how the accounting system is set up.
      • Abolishing the limit doesn’t increase spending; it just removes the arbitrary cap.
    2. Treasuries would still be issued
      • Even without a ceiling, Treasury securities would continue to exist, because they serve as the world’s safest savings asset and are essential to monetary policy.
    3. Inflation risk stays the same
      • The real economic constraint on federal spending is inflation, not the debt ceiling.
      • If government spends too much relative to the economy’s capacity, prices rise. That risk is unchanged whether or not there’s a ceiling.

🔹 International comparison

    • Most advanced economies (UK, Germany, Japan, Canada, etc.) do not have a debt ceiling.
    • Their governments borrow as needed, automatically authorized by their budget laws.
    • The U.S. is an outlier in tying itself to a separate, arbitrary cap.

Bottom line: If the U.S. abolished the debt ceiling, the economy would function more smoothly, the risk of self-inflicted default would vanish, and nothing fundamental about deficits or inflation would change.

The fights over “fiscal discipline” would just shift back to the regular budget process, where they logically belong.

RM: The UK, Germany, Japan, and Canada “borrow as needed”? Uh oh. Bit of a problem, there.

ChatGPT: Right — good catch. The phrase “borrow as needed” hides an important distinction.

Let’s be precise:

1. Monetary Sovereigns (UK, Japan, Canada, US)

    • They issue their own free-floating currency (pound, yen, Canadian dollar, US dollar).
    • They can never “run out” of their currency, since all their debt is payable in what they themselves create.
    • Their “borrowing” (issuing government bonds) is really just swapping one government liability (bank reserves) for another (securities).
    • Insolvency in their own currency is impossible; inflation is the only real limit.

2. Eurozone countries (Germany, France, Italy, etc.)

    • They don’t issue their own sovereign currency. They use the euro, which is controlled by the European Central Bank (ECB).
    • When Germany or Italy “borrows,” they’re more like a U.S. state or city — they can genuinely default because they don’t control the euro’s creation.
    • That’s why Europe has had sovereign debt crises (Greece, 2010s), whereas Japan, with debt >250% of GDP, has not.

So:

    • UK, Japan, Canada, US → issue their own money; their “borrowing” is voluntary, not necessary.
    • Germany and other euro countries → non-sovereign users of the euro; they really do rely on markets to buy their debt, and default risk is real.

👉 That’s the “uh oh.” People often lump them together, but the sovereign vs. non-sovereign distinction is crucial.

RM: Visualize an America that did not issue Treasury Securities.

ChatGPT:

1. What happens when the U.S. government spends now

    • Congress authorizes spending.
    • Treasury instructs the Fed to credit bank accounts (for Social Security checks, contracts, etc.).
    • The Fed simply marks up numbers in the banks’ reserve accounts — new dollars created.
    • To balance the books, Treasury then issues securities (bonds, bills, notes) equal to the deficit.

So: spending creates dollars → securities just “mop up” the excess by converting reserves into bonds.

2. Could the U.S. stop issuing bonds entirely?

Yes. Since the government is the monopoly issuer of dollars, it doesn’t need to borrow its own currency. If Congress allowed it, Treasury could:

    • Spend as authorized,
    • Leave the extra dollars as bank reserves in the Fed system,
    • And skip the bond sales.

The result would be the same net financial assets in the private sector, just held as reserves (zero-interest money) instead of Treasuries (interest-bearing money).

3. Why they don’t do this

    • Monetary policy tool: Treasuries let the Fed manage interest rates. If only reserves existed, interest rates would fall toward zero unless the Fed paid interest on reserves (which it actually started doing in 2008).
    • Safe savings asset: Global investors, banks, pensions, and foreign governments want Treasuries. They’re the benchmark risk-free asset of the world. Abolishing them would upend financial markets.
    • Political optics: Selling bonds makes it look like the government is “borrowing like a household,” which appeals to deficit hawks. It’s a disguise for what’s really just money creation.

4. Real-world examples

    • Japan: Debt >250% of GDP, yet no crisis, no inflation spiral. Why? Because its “debt” is just yen-denominated government liabilities.
    • U.S. during COVID (2020–2021): The Fed essentially financed trillions in new spending by creating reserves and buying Treasuries. Functionally, that’s almost the same as direct money creation.
    • QE (Quantitative Easing): When the Fed buys Treasuries, it just replaces them with reserves — proving Treasuries are optional.

5. Bottom line

    • Technically: The U.S. could stop issuing Treasuries tomorrow and still spend without limit.
    • Practically: Treasuries exist because they stabilize financial markets, give the Fed policy tools, and maintain the illusion of “borrowing” discipline.

👉 In other words, Treasury securities are not about funding the government, but about managing the financial system.

RM: Maybe we should stop calling T-securities “debt,” and start calling them “deposits.”

ChatGPT: Exactly — that’s the crux of it.

Calling Treasury securities “debt” makes them sound like a household loan, which is misleading for a currency-issuing government. A more accurate analogy is:

    • You buy a Treasury bill → you’re just moving your money from a checking account at the Fed (bank reserves) into a savings account at the Fed (a T-security).
    • At maturity, Treasury pays you back by shifting the balance from your “savings” (security) back to your “checking” (reserve account).

No outside funding required, no solvency risk — just accounting entries.

Why “debt” is misleading

    • Households and firms borrow because they can run out of money.
    • The U.S. government can’t — it issues the dollar.
    • What we call “debt” is just the government’s promise to return your dollars with a bit of interest, not evidence that it’s short on money.

Why “deposits” makes more sense

    • They’re functionally deposits at the Fed, just with fixed terms and interest.
    • They serve as a safe savings instrument for the private sector.
    • They are assets for investors, liabilities for the government, but not in the sense of a household debt.

Bottom line: Yes — calling them Treasury deposits or savings bonds would be far closer to reality than “debt.” The language of “national debt” fuels fear and politics, but economically, it’s just the sum of dollar-denominated deposits held at the Fed.

Everyone, please raise your hands if you would like ChatGPT (or one of its cousins) to replace the ineffective and misinforming congressional Representatives and Senators we currently have.

Perhaps some of the media and college professors as well.

In that event, I could retire from this blog and devote my remaining time to something less frustrating — like rolling a boulder up a hill.

 

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

Search #monetarysovereignty

Facebook: Rodger Malcolm Mitchell;

MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell;

https://www.academia.edu/

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Plenty of money to give tax cuts to the rich. Not enough money to feed poor kids

The Republican’s “Big, Beautiful Bill” (BBB) is big, and it sure is beautiful, if you’re in the upper 1% income group and you don’t give a hoot about what happens to those less fortunate.

Today’s headline:

WIC food assistance program for moms and children could run out of funds if shutdown persists

Oct. 2, 2025, 5:00 AM EDT

By Aria Bendix

Because Wednesday marked the start of the 2026 fiscal year, the WIC program — which provides free, healthy food to low-income pregnant women, new moms and children under 5— was due for an influx of funding.

Poor, starving children sit on the floor. They watch rich men sit at a table, eating.
YUM! This Big Beautiful Brunch is delicious. Too bad there isn’t enough to feed the kids.

Instead came the government shutdown.

If it persists, access to the federal program, known in full as the Special Supplemental Nutrition Program for Women, Infants and Children, could be jeopardized. A USDA letter to WIC state agency directors on Wednesday confirmed that states would not receive their next quarterly allocation of funds during the shutdown.

According to the National WIC Association, a nonprofit advocacy organization that represents state and local WIC agencies, “devastating disruptions” may deny millions of moms and children access to nutritious foods if the government remains closed for longer than a week or two.

WIC — a program within the U.S. Department of Agriculture — serves roughly 6.8 million people. It receives funding from Congress, which the USDA then allocates to stateson a quarterly basis.

From there, states distribute it to WIC clinics, of which there are roughly 10,000 nationwide. The clinics distribute preloaded cards that members use to purchase program-approved healthy foods at participating grocery stores. New moms can also purchase infant formula and receive lactation counseling.

Barbie Anderson, a mother of three who is pregnant, said she has relied on WIC to purchase healthy food since her oldest child was born nine years ago. Her family lives paycheck to paycheck in Milaca, Minnesota, she added, and the program helps them afford fruits, vegetables, eggs, milk, peanut butter and yogurt. She has also used it for breastfeeding support, she said.

Under normal circumstances, Anderson said, her WIC card would be reloaded on Oct. 15. She’s unsure if that will happen now.

“All the food that we get from WIC goes to our kids. So you’re really harming the kids” if services pause, she said.

During the shutdown, states will have to rely on up to $150 million in contingency funds from the USDA to continue offering services, along with a small amount of rollover funding from the previous fiscal year in some cases, according to the National WIC Association.

The group warned that the funding could dry up in a week or two if the shutdown persists, depending on how states allocate it. 

A USDA spokesperson told NBC News that WIC’s continued operation will depend on “state choice and the length of a shutdown.”

It will be interesting to see which states choose to keep funding and which states choose to end funding.

And while you ponder that one, here’s the phony political statement from the federal agency, USDA:

“If Democrats do not fund the government, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) will run out of funding and States will have to make a choice,” the spokesperson wrote in a statement.

Get it? The Republicans and their “Big Beautiful Bill” rushed to feed the rich, but decided not to feed the poor, so now it has fallen on the Democrats to “fund the government.”

However, some House Democrats say the federal government has the power to keep WIC afloat — if the USDA commits to replenishing state funds used during the shutdown after it ends. In a letter to Agriculture Secretary Brooke Rollins, Reps. Bobby Scott, D-Va., and Suzanne Bonamici, D-Ore., called on the USDA to do that.

The Democrats offer a solution that apparently the Republicans didn’t consider or didn’t want. We’ll see if the Republican-dominated Congress goes for it, or prefers to keep blaming the Dems for the BBB’s shortcomings.

The ability of WIC clinics to keep functioning will likely vary by state. Brandon Meline, director of maternal and child health at the Champaign-Urbana Public Health District, said he was told that Illinois (a blue state) clinics have sufficient money to last through the month.

We’ll leave you with these thoughts:

  1. The debt ceiling is an artificial construct that lacks real fiscal significance, but it has genuine consequences. Unfortunately, it is children and mothers who suffer from the bad decisions made by Congress.
  2. The federal government has sufficient funds to support those in need and can never run short of dollars.
  3. Additional federal taxes are not necessary to fund programs like WIC (Women, Infants, and Children).
  4. If Congress and the President chose to do so, they could finance all their initiatives without imposing any taxes or accumulating what is often referred to as “debt.”
  5. Simply by voting, the funds would become instantly available.

Your Representatives and Senators will now enter their extreme bullshit stage, where each party blames the other for a useless, harmful program they both have created and supported in the past.

Today, the only honest person in Washington regarding the debt limit, ironically, is America’s biggest liar, Donald Trump. He wants to get rid of it.

But he isn’t pushing that idea too hard, lest his MAGA zombies actually do it.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

Search #monetarysovereignty

Facebook: Rodger Malcolm Mitchell;

MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell;

https://www.academia.edu/

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.

In case you’re wondering . . .

I’ve been traveling lately. Just returned from Put-in-Bay Island and Cleveland (Cleveland???) and found that in the interim, nothing changed.

MAGAs still ignorantly agree with a dangerous, stupid, amoral, Hitlerian leader, along with his dangerous. stupid, amoral Nazi appointees.

To demonstrate their fealty, MAGAs still spend their precious dollars on worthless air sold by dear leader, while decrying federal dollars for the poor. The GOP still favors free speech, so long as the dear leader approves.

SCOTUS and Congress still are hopelessly corrupt. The economy remains the “greatest of all time” as it begins its swirl down the stagflation toilet.

The hero of the day is a dead bigot. America still is hated, only more so, and fewer people wish to live here. Goodbye to the “shining city upon a hill” myth.

The only “real” Americans still are straight, white, male CINOs (Christians in Name Only), who demonstrate their faith in Jesus by doing exactly the opposite of everything Jesus preached, not the least of which is continuing to express hatred of Jesus’s own religion.

Thousands of our most honest, hardest-working, tax-paying, valuable consumers are being deported by Nazi masked brownshirts in favor of useless, rich slugs who can afford to buy their way into the country for the purpose of plunder.

People still “wonder” whether dear leader, who has been convicted of, and admitted to, attacking dozens of women, miraculously found the moral and legal restraint not to abuse his friend Epstein’s young girls — as though that were the greatest of his sins.

And I still am old – er.

Thus, since I have been doing this for well over twenty years and have effected precisely zero change, my motivations, as well as my strength, have declined.

Hey, even my MMT pals still believe that a Jobs Guarantee would be a viable solution to unemployment, and federal deficit spending causes inflation.

So, what the hell?

Lately, I’ve speculated that what we term quantum “weirdness” is absolutely necessary for the existence of the universe (and thus, not weird at all), and that locality is a figment of our limited imagination. I’ll ask my AI friends about that.

Until America comes to its senses — or doesn’t — to tide you over, I’ll offer a few predictions you can mull about:

  1. Our dear leader will continue his march toward Hitlerism, aided and abetted by a corrupt and weak Congress and an even more corrupt Supreme Court.
  2. We will enter a deep recession, which will be blamed on Democrats, immigrants, the poor, Jews, and liberals, in no particular order.
  3. In response to the recession, the government will institute austerity measures, which will cause a depression.
  4. The following programs will be cut because they are “unaffordable,” (meaning they benefit those who are not rich): Social  Security, Medicare, Medicaid, Supplemental Security Income, Supplemental Nutrition Assistance Program (SNAP, “food stamps”), Temporary Assistance for Needy Families (TANF), Children’s Health Insurance Program (CHIP), Unemployment Insurance (UI), Earned Income Tax Credit (EITC), Child Tax Credit (CTC), Section 8 Housing Assistance (Housing Choice Voucher Program), Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), School Lunch and Breakfast Programs, Head Start / Early Head Start, Pell Grants, Veterans Benefits, Federal Employee Retirement / Disability Programs. 
  5. Food-borne diseases will become more common as more inspectors will be fired.
  6. All federal government services will be reduced.
  7. The military will take over more cities.
  8. Airplane accidents will increase.
  9. Our dear leader will introduce more programs to enrich himself and his family. MAGAs will continue to invest in those programs and lose their money, learning nothing from the experience.
  10. Tax dodges for the rich will be expanded.
  11. Books that mention sex, bigotry, slavery, gays, mistaken executions, glass ceilings, religious quotas, or anything that reveals any flaws in America will be burned to “protect our children.”
  12. Criticism of the government or politicians will be subject to punishment. (Harvard, take note.)
  13. It will be determined that the Constitution really doesn’t provide for a two-term Presidential limit, and even if it does, dear leader will avoid it by running as a VP, then “allowing” the President to resign.
  14. The Second Amendment again will be reinterpreted, this time to mean that anyone, regardless of age, mental capacity, or criminal history, can carry and use any kind of weapon at any time and in any place for any purpose.
  15. SCOTUS will decide that past, current or future Presidents will be immune to all legal claims, civil or criminal.
  16. SCOTUS will decide that any form of gerrymandering or voting restriction is legal.
  17. Millions of Americans will be unvaccinated, and so will sicken or die of polio, measles, mumps, rubella, chickenpox, diphtheria, tetanus, whooping cough, hepatitis A, hepatitis B, pneumococcal disease. meningococcal disease, rotavirus, influenza, COVID-19, human papillomavirus, shingles, pertussis, and RSV.
  18. Anyone, whether criminal or not, will be able to purchase and sell an immediate American citizenship for $1 million or two for $1.5 million. 

Be well. Be safe. Be smart. Vote if they let you.

Rodger Malcolm Mitchell

Monetary Sovereignty

Twitter: @rodgermitchell

Search #monetarysovereignty

Facebook: Rodger Malcolm Mitchell;

MUCK RACK: https://muckrack.com/rodger-malcolm-mitchell;

https://www.academia.edu/

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A Government’s Sole Purpose is to Improve and Protect The People’s Lives.

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What is the purpose of the debt ceiling?

Once again, the so-called “debt ceiling” is in the news. The Republicans, who traditionally favor limiting federal spending, now support increasing it. The Democrats, who traditionally favor increased federal spending, now advocate for limiting it.

So, as of this writing, we are headed toward a stalemate, which threatens America’s economy.

The Basic Problem: Inflation

Money was created as a store of value and a medium of exchange. It is the basis of economics. 

The earliest form of “standard money” appeared between 3000 and 2000 BCE in Mesopotamia, among the Sumerians and Babylonians. They utilized silver, measured by weight in shekels, as a standard of value for trade and record-keeping, even before the invention of coins. In Egypt, grain, metals, and other commodities served as units of account.

By around 2500 BCE, a form of money as a unit of account and medium of exchange was already in use.

Since then, nations have faced recessions, depressions, and stagflation; however, the primary concern in economics is inflation—the decrease in the value of a nation’s currency. 

Money is an artificial construct of value. A dollar bill is simply printed paper, just like a check. Neither possesses intrinsic value, and both can be easily created. The concern is that creating too much money will lead to a reduction in its value.

To prevent inflation, governments try to limit their ability to create money.

Gold and silver are permanently available in physical form and somewhat scarce, so linking money to these elements (gold and silver standards) was a means of restricting the creation of money.

Gold Standard and the Debt Limit

The debt limit serves as a modern equivalent to the historical gold standard. While the two concepts have different impacts, both aim to limit the government’s ability to create money.

If not for the fear of inflation, neither a gold standard, a silver standard, nor a debt limit would have been invented.

Under a gold standard, each unit of currency (dollar, pound, franc, etc.) was pegged to a fixed weight of gold. The U.S. Gold Standard Act of 1900 set 1 troy ounce of gold to be equal to, $20.67. People could, in theory, redeem paper money for gold at that fixed rate.

The government couldn’t create new money freely; it had to maintain sufficient gold reserves to back it.

If a government runs large deficits and needs to spend heavily, it risks losing gold reserves because creditors or foreign nations might demand repayment in gold. Additionally, “breaking the peg” could trigger panic, bank runs, and a loss of confidence.

In practice, deficit spending was tightly constrained by gold holdings. Countries often had to raise interest rates, cut spending, or deflate their economies to protect reserves.

Gold standards and other physical currency pegs limit economic growth. This limitation is both their purpose and their shortcoming.

When the economy grows faster than the supply of gold, it leads to deflation, meaning there isn’t enough money relative to the amount of goods available. Moreover, if gold is depleted—such as when it’s sent overseas to cover trade deficits—countries are forced to reduce credit and spending, even during recessions.

This is why the gold standard worsened the Great Depression: the U.S. and Europe focused on defending gold reserves instead of stimulating their economies.

The U.S. suspended gold convertibility for domestic purposes in 1933.

Following World War II the Bretton Woods system was established, which pegged various currencies to the U.S. dollar. The dollar, in turn, was pegged to gold at a rate of $35 per ounce.

In 1971, President Nixon ended gold convertibility by “closing the gold window.” Since that time, the U.S. dollar has become fiat money, meaning it is not backed by any physical commodity but rather by U.S. law and the “full faith and credit” of the U.S. government.

The years spent dealing with the challenges of the gold and silver standards have ultimately been in vain. Today, inflation is no greater a problem since those standards have been abolished. Additionally, we have not experienced a depression since the end of the gold standard.

About the Debt Ceiling

The debt ceiling is a legal limit set by Congress on the total amount of money that the U.S. Treasury can borrow to fulfill existing obligations.

The stated purpose is to control borrowing. It was originally intended (in 1917, with expansion in 1939) to give Congress oversight of federal borrowing while allowing the Treasury to issue debt without constant, individual approval.

Supporters claim it forces Congress to confront federal deficits and spending levels. Also, it allows legislators to make a public statement about debt, deficits, or fiscal responsibility.

In reality, the debt ceiling does not control new spending. Rather, it restricts the payment of existing obligations. Spending levels and taxes are set by Congress through separate budget and appropriations laws. Once those laws are passed, the Treasury is obligated to pay the bills.

The debt ceiling creates a risk of default. Once the ceiling is reached, the Treasury cannot issue new debt, even though it must meet legally required obligations such as Social Security, interest on the debt, Medicare, military pay, and contracts. This situation forces the use of “extraordinary measures,” and if it continues for too long, it could lead to a U.S. default.

Additionally, the debt ceiling has become a political tool. In recent decades, political parties have used debt ceiling votes to advance unrelated policy goals.

Most economists view the debt ceiling as economically unnecessary and politically hazardous. It does not actually limit future debt, as spending and tax laws determine that. Instead, it introduces an unnecessary risk of default that can destabilize markets and increase U.S. borrowing costs.

The United States is unique in having a separate debt limit; few other advanced economies impose such a restriction, as they allow borrowing to flow automatically based on budget decisions.

In summary, while the stated purpose of the debt ceiling is to promote fiscal restraint, its actual effect is often a result of political posturing that can have serious economic consequences.

Major Debt Ceiling Crises

Congress raised the debt ceiling several times during President Eisenhower’s presidency.

Even then, this effort has been more about political strategy than actual debt control. While Republicans have aimed to project a fiscally more conservative image, the ceiling continued to rise under both parties.

1979 – “Technical Default”: A clerical error, plus temporary cash-flow issues, caused a brief delay in paying Treasury bills. Investors demanded higher yields afterward—showing even the hint of default costs taxpayers.

1995–96 – Clinton vs. Gingrich: The Republican House, led by Speaker Newt Gingrich, refused to raise the ceiling without big spending cuts. Result: Two government shutdowns. The ceiling was eventually raised with no major long-term cuts.

2011 – Obama vs. House Republicans: The Republicans refused to raise the ceiling unless Obama agreed to major deficit reduction. Outcome: The U.S. came within days of default. The “Budget Control Act” imposed automatic spending caps (sequestration).

S&P downgraded the U.S. credit rating for the first time in history due to political dysfunction. As a result, stock markets fell and borrowing costs rose.

2013 – Obama Again: Another showdown over Obamacare and spending. The Treasury used “extraordinary measures” for months. The ceiling finally was suspended—but markets were rattled, with short-term Treasury yields spiking.

2013 – Obama Again: Another confrontation over Obamacare and spending. The Treasury employed “extraordinary measures” for several months. The ceiling was ultimately suspended, but markets were unsettled, causing short-term Treasury yields to spike.2013 –

2019 – Trump: A bipartisan deal suspended the debt ceiling for two years. Republicans largely dropped opposition to debt increases when they controlled the White House.

2021–2023 – Biden Era: Republicans initially refused to raise the ceiling; Mitch McConnell allowed a temporary extension at the last minute.

2023: With Republicans controlling the House, Speaker Kevin McCarthy negotiated a deal with Biden. The deal capped some discretionary spending growth for 2 years. Treasury had been within days of running out of money.

Notice the pattern? The stated purpose always is to “control debt and deficits,” but the actual outcome is that the debt ceiling always is raised or suspended (78 times since 1960), the so-called “debt” continues to rise, and the economy continues to grow.

Meanwhile, the side effects are market turmoil, higher borrowing costs, political theater, and in 2011, a credit downgrade.

Other advanced countries do not have this issue. In those countries, borrowing authority is automatically granted through the budget process.

The U.S. debt ceiling is unique because it creates artificial crises without altering fiscal reality.

Even the fundamental beliefs are wrong.

I. The Federal Government Does Not Borrow Dollars.

Federal finances are not like personal finances.

The federal government uniquely is Monetarily Sovereign. It has the unlimited ability to create dollars simply by pressing computer keys. It never unintentionally can run short of dollars.

Even if the federal government collected $0 taxes, it could continue spending trillions upon trillions of dollars, forever. 

The notion that the government “borrows” comes from the semantic misunderstanding of the words “notes.” “bills,” and “bonds.” In the private sector, those words signify debt. But in the federal sector, they merely are forms of money, like “dollar bill” and “federal reserve note.”

II. Federal Deficit Spending Is Necessary for Economic Growth

Reductions in federal deficits lead to recessions (vertical gray bars). Recessions are cured by increased federal deficits.

Federal deficits inject growth capital into the economy. While the federal government has unlimited currency, the economy needs a steady inflow of dollars for expansion.

Over the years, as federal deficits have increased, the Gross Domestic Product has also risen.

If federal deficits were economically harmful, one would not expect to see the graph above, which shows the economy’s growth paralleling the growth of deficits.

The reason is clear. GDP=Federal Spending + Nonfederal Spending + Net Exports.

III. Federal Deficit Spending Does Not Cause Inflation