What value is having a ceiling on our National Debt anyway?

The Gross National Debt

Tune in on August 2, 2011 ...




Interestingly, I heard a snippet of news on my favorite XM station while driving home from work yesterday. Moody's Ratings agency just yesterday suggested the United States should eliminate its statutory limit on government debt to reduce uncertainty among bond holders.

With that one quick fix to the current crisis, we would stabilize the entire world's economy and likely maintain the US Dollar as the standard currency for world trade for as long as we maintained a growing Gross Domestic Product.

Specifically Moody's addressed the current silliness (but serious silliness) as follows (taken from an article extracted in part from CNN's News Bureau tab on its website):

"The United States is one of the few countries where Congress sets a ceiling on government debt, which creates "periodic uncertainty" over the government's ability to meet its obligations.

"We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty," Moody's analyst Steven Hess wrote in the report.

The agency last week warned it would cut the United States' AAA credit rating if the government misses debt payments, increasing pressure on Republicans and the White House to come up with a budget agreement.

Moody's said it had always considered the risk of a U.S. debt default very low because Congress has regularly raised the debt ceiling during many decades, usually without controversy.

However, the current wide divisions between the House of Representatives and the Obama administration over the debt limit creates a high level of uncertainty and causes us to raise our assessment of event risk."

And they promptly proceeded to do just that ... only a shot across our bow for the moment, but our AAA rating is looking a bit shaky today.

What most European countries do to limit debt not owed to its own citizens (we owe about 40% of our current $14 trillion-plus debt to ourselves) is to periodically adjust the percent of the GDP that is permitted to comprise the National Debt. We squeezed under most such percentages utilized by almost all of the developed countries in the world today (between 60 and 80 percent) ... even during the Great Depression and World War II.

Whatever, it seems quite sensible to Mediawingnuts to disconnect the National Debt "Ceiling" from Government Spending and taxation (both controlled by a skittish and partisan U.S. Congress). I'd also suggest that the word "Ceiling" be replaced by the words, "Prudent Approximate Maximum Percentage of GDP Except for Times of Unusual Circumstances such as a Collision with a Moon-sized Asteroid or the Unexpected Rapture of Believing Christians into the Loving Arms of Jesus."

But then, why have a "Ceiling" of any kind?