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Raising the Ceiling

Jan 7, 2011 • Economic History, Financial Markets, Government, Macroeconomic Measurement, Money and Monetary Policy • 162 Views    No Comments

Calvin Coolidge once said, “Nothing is easier than spending the public money. It does not appear to belong to anybody. The temptation is overwhelming to bestow it on somebody.”

The national debt did decrease when Coolidge was President. But then it rose during the 1930s and soared during WW II. John Steele Gordon’s Hamilton’s Blessing The Extraordinary Life and Times of the National Debt provides a wonderful history of the federal debt. While we owed $80,359,000 in 1792, in 1834 and 1835, the debt plunged to $38,000. A lot and a little, though are relative. Just like a $1 million loan is huge to someone earning $100,000 a year and tiny to a billionaire, so too does judging the size of our national debt relate to our nation’s wealth.  

Where are we going with all of this? To the debt ceiling. The need to authorize the maximum amount we can borrow was established by Congress in 1917 through the Second Liberty Bond Act. Since 1962, the U.S. has raised its debt ceiling 75 times.

And now, probably by March 31, we have to do it again.

The Economic Lesson

Specifically defined, federal fiscal policy refers to taxing, spending, and borrowing. It involves the federal deficit which is the shortfall between annual spending and revenue. The federal debt is the total amount that the U.S. government owes.

The federal debt is held by the government and the public. For example, the Social Security Trust Fund has excess dollars which are not held in a lock box. Instead, the government loans the money to “itself.” As you know, you and I and other governments and businesses also can purchase the debt.

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