Fear Abounds That Debt Ceiling Elimination Could Lead to Uncontrolled Spending
Donald Trump cut a surprise debt ceiling deal with Democrats on September 6, much to the chagrin of House Leader Paul Ryan and Senate Majority Leader Mitch McConnell. But the real news isn’t that Trump forged a new debt ceiling without key members of his own caucus. It’s the fact that Trump wants to do away with the debt ceiling completely. That’s certainly raising eyebrows in Washington.
And with good reason. Even though the debt ceiling is something of an anomaly in Western politics, it works to keep federal spending in check. The arcane process also allows government debate over federal expenditures, which periodically do occur.
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For example, the 2011 debt ceiling was raised on several preconditions tied to spending. Further debt ceiling expansion (beyond the initial $900.0 billion sum) was only made available after a special committee identified matching levels of additional spending cuts. That sum was between $1.2 trillion and $1.5 trillion. Also, the agreement called for $900.0 billion in additional spending cuts over 10 years in various government programs. (Source: “A summary of the debt ceiling compromise,” CBS News, August 1, 2017.)
For all the shenanigans and useless political theater it provides, at least platitudes of fiscal conservation are applied. Debt ceiling negotiations shine a much-needed light on rampant fiscal excess, which our elected leaders look to rein in. But if Donald Trump has his way, those last vestiges of fiscal accountability might vanish. When debt ceilings rise automatically, fiscal restraint becomes less likely.
In fact, all this has been talked about before. Senate Minority Leader Chuck Schumer proposed a similar legislation in 2013, when Barack Obama was president. The bill would have authorized the president to request a debt ceiling hike as the limit approached, along with an expedited vote process in Congress to vote on a joint resolution of disapproval. Mitch McConnell emphatically rejected the plan then, calling it “…a plan to permanently hand the president a credit card without spending limits, and without lifting a finger to address the national debt.” (Source: “How Trump, Schumer Might Deal on Killing the Debt Limit,” Roll Call, September 7, 2017.)
It appears Trump wants to resurrect this agenda. If McConnell is right in his assertions, the national debt could balloon well beyond current estimates. Of course, soaring deficits would put pressure on the U.S. dollar over time, undermining its reserve currency status. Just the idea sent the U.S. Dollar Index down around 0.8% on September 7, to 32-month lows.
It appears the “King of Debt” is quite comfortable with an open debt limit. Who could have seen this coming?
How Would Spending Look Without a Debt Ceiling?
If Trump is able to broker an agreement that raises future debt ceilings by decree—with Congress as the rubber stamp—could things like Universal Basic Income (UBI) be far behind? What about a decree requesting $5.0 trillion in funds to build a naval fleet of aircraft carriers? The problem with going down this route is that a lack of fiscal control lends itself to such possibilities.
We already know Trump has sought to rebuild the nation’s crumbling infrastructure. A noble cause for sure, but something which will require over $1.0 trillion to accomplish. Doing away with the “hassle” of a debt ceiling could remove the impediments preventing Trump to pursue such programs. We’re sure that’s entirely the point.
If you believe that history is the best predictor, then it’s entirely possible Trump’s coziness with debt could become problematic.
For example, Trump has filed for corporate bankruptcy on four separate occasions brought about by excessive leverage. In one such period, Trump loaded up on $2.0 billion worth of junk bonds to finance the construction of the Trump Taj Mahal in Atlantic City. The casino was cash flow positive into the nine digits annually, but the high interest exceeded revenues. This almost torpedoed his personal wealth. But after much negotiations and hand-wringing with creditors, he rose from the ashes.
Perhaps Trump has a similar post-default plan in mind.
Trump’s comfortableness with debt is also apparent with his Treasury Secretary pick, Steve Mnuchin. Mnuchin is a proponent of extending debt maturity beyond the 30-year Treasury Bond to upwards of 100 years. That is a longer life cycle than the average human being!
“We’ll look at potentially extending the maturity of the debt, because eventually we are going to have higher interest rates, and that’s something that this country is going to need to deal with.” (Source: “Mnuchin Says He’ll Consider Longer Maturities at Treasury,” Bloomberg Markets, November 30, 2016.)
While Trump’s checkered record on debt is concerning, the problem isn’t limited to Donald Trump. Should a progressive or even socialist (i.e. Bernie Sanders) president emerge in 2020, an open debt ceiling could become downright scary. To a social progressive, there’s never been an issue taxpayer money couldn’t solve.
Unless alternative checks are layered in, any future president could blow a hole in the deficit. No wonder fiscal conservatives are up in arms.
