A Debt Ceiling—Is It Really Necessary?

By: Dr. Lynn Reaser

Amidst the ongoing melodrama in Washington, D.C., Americans are decrying the disfunctionality of our government.  Many are also beginning to question why we are inflicting this crisis on ourselves by trying to lift a self-imposed debt ceiling of $14.3 trillion.

As it turns out, the United States is the only industrialized country aside from Denmark that has a mandatory debt ceiling.  Denmark’s ceiling is also quite liberal in that it is well above the actual debt level.  It should be noted that Denmark has shown quite good fiscal discipline.  It has a ratio of total government debt to GDP (gross domestic product) of about 45% versus the 80% average existing in the total European Union.

In the United States, doing away with the debt limit at this stage could signal to the markets and the world that we have given up efforts to put our financial house in order.  While the debate over the debt limit has been tortuous, it has focused the attention of Congress, the White House, and the public on the importance of reducing the size of the nation’s deficit and the growth of our debt.  This was not the case a year ago.

It is unfortunate that Washington only acts when compelled to do so, but the U.S. debt already amounts to about 70% of GDP (gross domestic product) with further increases in the years ahead without meaningful change.  It is vital that action be taken.


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