America’s Debt Limit: History Has a Warning for Both GOP and DEM Voters
A blessing of age lies in the providence of reflection. Who else remembers what happened in 2011 and 2013? Hint, it was a self-inflicted wound of preposterous proportions.
What happened during the last debt ceiling hostage crisis?
At that time, the United States faced a potential default on its debt after the Republican-controlled House of Representatives refused to raise the debt ceiling, which is the legal limit on the amount of debt that the federal government can hold.
The impasse was part of a larger political battle over spending and taxes.
The 2011 standoff lasted for several weeks and resulted in the first-ever downgrade of the US credit rating by Standard & Poor's. The 2013 standoff was even more contentious, lasting for more than two months and leading to a 16-day government shutdown.
During the 2011 and 2013 self-inflicted debt ceiling crises:
The stock market experienced significant volatility.
Consumer and business confidence turned negatively.
Job growth and household wealth suffered significantly
stock prices and home values fell during the crises.
The debt ceiling crisis also caused a decline in GDP growth, and it is estimated that the 2011 crisis alone cost the American economy $18.9 billion, equivalent to 0.6% of GDP, and 120,000 jobs.
The U.S. government has always met its financial obligations and raising the debt ceiling does not authorize new spending, it simply allows the government to pay the bills it has already incurred.
The federal deficit is the difference between the amount of money the government takes in through revenue, such as taxes, and the amount it spends each year.
Both Republican and Democratic administrations have contributed to the rising and falling of the federal deficit over the years.
During the administration of George W. Bush, the federal deficit rose significantly. This was due in part to the 2001 and 2003 tax cuts, as well as increased spending on defense and homeland security in the wake of the 9/11 attacks.
Additionally, the cost of the wars in Iraq and Afghanistan also contributed to the rising deficit.
Under the Obama Administration, the deficit decreased somewhat during his first term, due to a combination of spending cuts and tax increases. In 2010, the Affordable Care Act was passed, which included a number of measures to reduce the deficit. However, the deficit increased again in later years.
Due in part to stimulus spending in response to the 2008 financial crisis and the Great Recession, which led to a decline in revenue.
Under the Trump Administration, the deficit increased again due to a combination of factors.
Including the 2017 tax cuts, increased military spending, and rising entitlement spending.
On the other hand, there are examples of prudent savings during some presidents terms.
One example is during the Clinton Administration, the Balanced Budget Act of 1997 was passed, which included a combination of spending cuts and tax increases.
This helped to bring the federal deficit to a surplus by the end of the Clinton Administration, the first time this had happened in decades.
It's worth noting that the main drivers of the deficit and debt are long-term structural issues such as the aging population and rising healthcare costs. These issues will continue to put pressure on the federal budget regardless of which party controls the presidency or Congress.
If today's congress does not agree to pay for the obligations that they themselves approved - they will be fine. It's America and Americans that will suffer.
The Revolutionary War: America's Original Debt Crisis
The Founding Fathers were able to fund the extreme cost of the Revolutionary War through a combination of borrowing, taxes, and printing money.
One of the main ways the colonies financed the war was through borrowing.
The Continental Congress issued bonds, which were sold to both domestic and foreign investors. These bonds were backed by the promise to pay the principal and interest in the future, but the lack of a central government to enforce tax collection and the uncertainty of the war effort made it difficult for the Continental Congress to raise enough funds to pay the bonds, leading to inflation and the devaluation of the bonds and the currency.
Another way the colonies financed the war was through taxes.
The Continental Congress imposed taxes on a variety of items, including rum, sugar, and tobacco. However, these taxes were often difficult to collect and were not sufficient to cover the costs of the war.
Continental Currency and the Printing of Money 💰
Finally, the colonies also printed money, known as Continental Currency, to finance the war. However, this led to significant inflation and devaluation of the currency, as the colonies were not able to back the currency with gold or silver.
The impact of the funding of the Revolutionary War on future generations was significant.
The war left the new nation with a large national debt, which was not fully paid off until the early 19th century.
The inflation and devaluation of the currency also had a negative impact on the economy, making it difficult for the new nation to establish a stable financial system. Additionally, the experience of funding the war through borrowing, taxes, and printing money also influenced the drafting of the Constitution, where the founders included provisions for taxation and borrowing in the Constitution to prevent similar financial problems in the future - until now.