Why Is the Debt Limit Redundant?

It seems like practically every day something comes up that I just don’t understand. With all of the hand-wringing that’s been going on over the next reaching of the debt limit, it occurred to me that I really didn’t understand much of the discussion. You don’t need to look very hard to find an op-ed, editorial, blog post, or even a pronouncement by a high-ranking government official that the debt limit can just be ignored.

Here’s what puzzles me. Why isn’t the converse equally true or even truer? That is, that in appropriating spending beyond the debt limit Congress is exceeding its authority and the appropriation is illegitimate and should just be ignored.

It seems to me that’s actually the better argument. The 14th amendment guarantees the debt not appropriations. An appropriation is just a federal law. The Congress can reduce the appropriation or eliminate it altogether just by passing another law. The debt on the other hand is beyond the power of Congress to abrogate or reduce other than by appropriations to do so.

I know that there are people who believe that the federal government as a monetary sovereign does not have debts. They’re confused. The Treasury issues bonds and bonds are by definition debt instruments. It would be more accurate to say that the federal government as a monetary sovereign does not require debt to finance its operations. I have my doubts about even this since I wonder to what degree the federal government is actually a monetary sovereign. The federal government and the Federal Reserve are not synonymous and the Federal Reserve is a public/private hybrid, not a government department.

The Treasury can certainly always print more money. However, it can’t force the Federal Reserve to honor its checks. To me that implies limits to the federal government’s monetary sovereignty. But back to the original question.

So, help me out here. Why is the debt limit redundant?

5 comments… add one

  • Hari

    This is a great question. I suppose the answer is the debt limit isn’t hit until the money is spent, not appropriated.

  • PD Shaw

    I guess it all depends on how broadly you consider “questioning” the “validity” of public debt. I think it means legislative repudiation, as discussed here, not simply actions that delay or pose problems for debt repayment. If questioning the validity of the public debt means any action that makes it less likely to receive payment, such as repeated deficits, then the public debt has always been in question. Maybe it means that if the S&P downgrades U.S. debt, it can be jailed for its impertinent questioning ways.

  • I would say that the 14th amendment was an attempt at taking repudiation of the federal debt off the table. I don’t think that answers the basic question: what’s the relationship between appropriations and the debt?

    My interpretation would be that the debt has precedence.

  • michael reynolds

    I’m confident that we will now hear the Republicans’ specific proposals for what cuts they’d like to make. Should be any minute now. Because they really want to cut spending. So here it comes. Get ready.

  • PD Shaw

    I believe the distinction between Congressional spending and borrowing isLarry Tribe’s problem with the 14th Amendment arguments. He goes on to point out that not all things the government spends money on can be considered “public debt,” and thus the President should be expected to prioritize payments without any 14th Amend. relevance.

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