Economics for Church Leaders: Understanding the Debt Limit Crisis – Joe Carter

The Term

Debt limit / debt ceiling

What It Means

Since 1970, the federal government has brought in less revenue than it spends (except for the years from 1998 to 2001). To cover this difference, the Department of the Treasury must issue government bonds, which increases the national debt. But the amount the Treasury can borrow is limited by law.

The first debt ceiling was enacted in 1917 through the Second Liberty Bond Act. Various changes occurred before it was codified into law in 1982. That law states the nation’s debt limit cannot exceed $14.294 trillion unless a change is made through the congressional budget process. However, over the past few years, Congress has increasingly raised the debt limit, and it now stands at $31.4 trillion. The current national debt has surpassed that figure—$31.5 trillion.

On January 19, Treasury Secretary Janet Yellen sent a letter to Congress notifying representatives that to avoid default her agency would begin taking “extraordinary measures.” The extraordinary measures currently being considered are (1) redeeming existing and suspending new investments of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund, (2) suspending reinvestment of the Government Securities Investment Fund, (3) suspending reinvestment of the Exchange Stabilization Fund, and (4) suspending sales of State and Local Government Series Treasury securities.

The extraordinary measures extends the time before the debt limit becomes a crisis by at least a couple of months. Because tax revenues come in every day, the government always has some cash to pay some of its bills. Eventually, though, if Congress doesn’t raise the debt ceiling, the Treasury won’t have enough to cover all bills that need to be paid.

Every day the Treasury Department receives around 2 million invoices from various agencies that need to be paid. For example, the Department of Interior may send an invoice to pay a contractor in Montana for repairs at a national park. The Treasury has computers that process the invoice, make sure the figures are correct, and then authorize the payment. This is all done automatically, dozens of times per second.

The computers are designed to make each payment in the order it comes due, and if money isn’t available the payment may not clear. Therefore, some people owed money by the federal government wouldn’t get paid, causing Americans and the rest of the world to wonder if the U.S. is serious about meeting its financial obligations. That could precipitate a global financial crisis.

Will that happen? No. As the Treasury points out,

Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit—49 times under Republican presidents and 29 times under Democratic presidents. Congressional leaders in both parties have recognized that this is necessary.

Wouldn’t refusing to raise the debt ceiling lower our national debt? Also no. The debt ceiling does not lower the national debt. The legal obligation to pay the debt has already been incurred by the government so the money is already owed. The U.S. Constitution forbids defaulting on the debt (14th Amendment, Section 4), so the government is required to use what revenues do come in to pay holders of Treasury bonds. As noted above, if the government refused to pay its obligations, it would result in a global financial crisis—and likely on a scale never seen before in history.

Congress will eventually raise the debt ceiling and allow the Treasury to borrow more money. Unfortunately, there’s nothing in the Constitution that requires Congress to approve borrowing at the same time they approve deficit spending. While many economists and politicians have suggested eliminating the debt limit requirement, no serious proposal to remove it is being considered, and it likely won’t be as long as it can be used as a political tool and the American people signal they don’t care.

Why It Matters

The Bible is clear that believers are to pay what we owe. The apostle Paul tells us, “Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed” (Rom. 13:7). Similarly, the psalmist warns that “the wicked borrows but does not pay back” (Ps. 37:21). And Proverbs tells us, “Do not withhold good from those to whom it is due, when it is in your power to do it. Do not say to your neighbor, ‘Go, and come again, tomorrow I will give it’—when you have it with you” (Prov. 3:27–28).

While the Bible has a lot to say about debt, it doesn’t say anything about the debt limit. Still, there are a few conclusions we can draw from the biblical principles—particularly to be honest in our dealings and to pay what we owe. And while the government is a secular entity, the debt is being incurred on our behalf by our duly elected representatives.

The debt limit debate is about how we (including those of us Americans who identify as Christian) will pay for financial obligations incurred by Congress. Congress agreed to allow the government to spend in excess of revenues, but now certain members are refusing to pay what’s due unless their demands are met. Hopefully, they’re only bluffing and have no real intention of throwing the country into a financial crisis. But even if they’re lying about their true intentions, they’re threatening to act immorally if they don’t get their way.

Christians should find such behavior unacceptable, regardless of which political party is doing it (and both parties will continue to do it in the future as they’ve done in the past). The fact that they’re representing us makes such an action intolerable. If we as citizens are to pay taxes to whom taxes are owed, and revenue to whom revenue is owed, shouldn’t the authorities set up as “ministers of God” be expected to do the same (Rom. 13:4, KJV)?

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