By New York Post (Opinion) | Created at 2025-01-03 22:48:28 | Updated at 2025-01-06 04:19:43
2 days ago
You may have missed it amid your New Year’s Eve revelry, but the United States Congress is now, as of the stroke of midnight on Jan. 1, officially in violation of the federal debt limit.
That’s because the debt ceiling, which sets the total dollar amount the federal government is allowed to borrow, had been suspended until the beginning of 2025.
With the new year came its reinstatement, and guess what: The nation’s current outstanding debt is already nearly $4 trillion over the legal limit of $31.4 trillion.
If private money managers were acting like this, we’d probably put them in jail for financial fraud.
Technically, Congress right now is prohibited from issuing any new debt — meaning it can only spend, each day, what the federal government brings in.
So why is Congress able to keep spending like giddy kids in a candy store?
Because the president has authority to invoke what are called “extraordinary measures” to juggle money around and extract dollars from trust funds (that must be repaid) to cover the government’s bills, even as the debt continues to soar.
That will give soon-to-be President Trump just three to five months of wiggle room — and then, no amount of accounting gimmicks will further delay the drop-dead date when federal borrowing must stop.
At that point, only the most urgent programs will get funded, while the rest of the government shuts down.
For economists and investors, the big worry is that as the date approaches, the bond market goes haywire over the threat of bonds not being paid, which would skyrocket interest rates on federal bonds — and make our debt crisis even scarier.
The sliver of good news is that a debt default is extremely unlikely — even though the media keeps spooking voters with that boogeyman.
If you own government bonds, they will be paid, and on time.
What is likely, however, is for Congress’ spending proclivities to trigger a financial crisis, or runaway inflation, due to its rivers of red ink.
In the last 12 months the debt rose by another $2 trillion.
It’s as if borrowing is Congress’ crack cocaine habit.
And both parties are addicted.
When I first came to Washington forty years ago, in 1984, we had a debt of just above $1 trillion.
Now our debt is 35 times greater — and even adjusted for inflation, that’s a ten-fold increase.
The raging debt is like that famous rolling boulder speeding through the cave to flatten Indiana Jones in the first iconic scene in “Raiders of the Lost Ark.”
Indy outran catastrophe.
Will we?
What’s troubling is instead of solving the overspending crisis in Washington, the solution that Democrats and some Republicans in Congress — and even President Trump — are proposing is to eliminate the debt ceiling altogether, placing no cap on the federal credit-card balance.
I can understand why Republicans are skittish about another debt showdown.
In every federal budget crisis, the media unfailingly blames the Republican Congress or president for the mayhem.
Why keep giving them a target?
Trump has an ambitious agenda he’s promised to fulfill; the last thing he wants to spend his first 100 days on is some legislative squabble over a budget rule most voters don’t understand or care about.
And in truth, every incumbent president, of both parties, would unlatch these fiscal handcuffs if he could.
But canceling the debt ceiling would be like trying to stop teenage kids from boozing by unlocking the liquor cabinet.
Giving Congress an unlimited credit card is a dangerous idea that will only accelerate the ruinous fiscal path we’re on.
No, if Trump is serious about shrinking government and cutting spending, he should embrace the debt ceiling as an important tool.
Historically, debt-ceiling fights have been the only way to get Congress focused on out-of-control spending.
Newt Gingrich used the debt ceiling deadline to get a budget deal with President Bill Clinton — and the only balanced federal budgets in the last 50 years.
But getting a deal that really does reduce spending long-term will require tough negotiations and genuine leadership.
Trump and his GOP-majority Congress must team up to set a credible path to a balanced budget over the next 12 years — with some serious consequences for overspending.
For example, the budget deal could specify that if borrowing goes over the allowable amount, an automatic spending-reduction meat cleaver will chop all programs (except for Social Security, Medicare and veterans benefits) by a set percentage, to force spending down below the permitted target.
Then Congress should give the president automatic impoundment power to shave extraneous federal spending — for example, the $10 billion being spent to rent empty office buildings.
Combined with Elon Musk’s DOGE commission, a reinstated debt ceiling could help Congress slash its runaway spending.
The debt ceiling is the equivalent of a smoke detector in a home.
It doesn’t cause the fire — but it warns you that the fire is blazing, and had better be extinguished.
Stephen Moore is a senior fellow at the Heritage Foundation, a co-founder of Unleash Prosperity, and coauthor of “The Trump Economic Miracle.”
