The debt ceiling crisis highlights the flaws in the US system. Debt | Problems | The United States

International Observation: Legislative Chaos in the United States Congress

Author: Liu Weidong

The problem of the US debt ceiling is a "common disease" and "frequently occurring disease" that has plagued the US government and society. Several governments have been recruited, and the incidence has become more frequent in recent years. Not long ago, the debt ceiling of the United States faced another crisis. After a long period of repeated games, the Democratic and Republican parties finally reached a compromise before the default. The Republicans agreed to raise the debt ceiling again, but forced the Democrats to make concessions in terms of reducing expenditure on defense and non defense accounts, including the recovery of COVID-19's anti epidemic assistance funds, the reduction of the allocation to the National Tax Administration, and the improvement of the minimum number of years to receive food stamps without work. However, the compromise between the two parties is temporary, with both lawmakers dissatisfied with the outcome, and due to unresolved issues, the next round of crisis will soon come.

Debt ridden, painted by Lu Chongguang

The US federal government relies on taxation and borrowing to fulfill its financial obligations, and its expenditures involve three parts: first, statutory expenditures, including social security, healthcare, pension subsidies, etc; The second is autonomous expenditure, including domestic, international, and defense expenditures; The third is the interest expenditure on government borrowing. Due to the inability of government taxation to meet its fiscal expenditure needs, borrowing has been a common means of fundraising for successive US governments. The main buyers of government bonds are the American people, institutions, and foreign governments. In the early days, the US gold reserves were its investment guarantee. After the US dollar abolished the gold standard, the credit of the US government became the main guarantee for attracting debt investment.

But money always needs to be borrowed and repaid, and excessive borrowing may lead to the government losing its ability to repay its debts. Therefore, in 1917, the US government passed the Second Free Bond Act, which stipulated that Congress would control the issuance of various types of bonds by setting a debt ceiling. If the federal debt reaches its limit and the limit is not raised, the government will be unable to pay borrowing interest, resulting in a federal debt default. The consequences of default are very serious, including the inability of the Ministry of Finance to continue issuing bonds; The government shuts down and no longer provides some services; US bond holders cannot obtain investment interest; Banks are experiencing a large-scale currency exchange frenzy, economic growth is declining, unemployment is skyrocketing, and social unrest is occurring; Serious impact on the global economy and financial markets, and even trigger global financial shocks.

The debt ceiling is established by the US Congress and approved by the President, and changing the debt ceiling also requires following normal legislative procedures. Since 1940, Congress has initiated legislation to change the debt ceiling more than 90 times, including 18 since 2000 alone. Prior to 1995, the controversy surrounding the revision of the debt ceiling was limited. After that, the struggle between the Democratic and Republican parties on this issue continued to intensify. The Republican Party is in principle opposed to unconditionally raising the debt ceiling, and if it has to be raised, it requires significant budget cuts as a prerequisite. The Democratic Party supports an unconditional increase in the debt ceiling to avoid a crisis, supports reducing the fiscal deficit by increasing taxes, and opposes cuts in spending on social security, healthcare, and other areas. Due to the increasing opposition between the two parties in recent years and their refusal to compromise, the debt ceiling issue has become a new hot potato in American political life, leading to a downgrade of the US credit rating. Overall, the political system and partisan struggles in the United States are the main reasons for this.

Firstly, the decentralization of government powers is an important reason for the frequent occurrence of debt ceiling crises. The US Constitution stipulates that Congress has the power to decide on the tax and expenditure plans of the United States, making it the "money bag" of the United States; The administrative department is responsible for proposing budget drafts for approval by Congress, followed by specific expenditures. In reality, the administrative department understands the actual needs of government funds for the national economy and people's livelihood, while the Congress does not have relevant information; The executive head needs to achieve political success by meeting the various needs of voters, while the Congress is responsible for monitoring whether their actions are appropriate.

The original intention of the design of power balance is reasonable, but in practical operation, it cannot avoid both sides falling into power struggles and often disregarding the overall situation. Congress often does not pay much attention to the real financial pressure faced by national development, but instead focuses on restoring the "ideal state"; The vote to raise the debt ceiling will also be separated from the vote to approve government spending or taxation, in order to more effectively control the actions of the administrative department. The administrative department places more emphasis on solving immediate problems as soon as possible, even with great success, and is not too concerned about the potential risks that the surge in fiscal expenditure may bring to the future development of the country. From this, it can be seen that the "sweeping snow in front of each door" caused by the decentralization of power between the government and the council is an insurmountable obstacle to solving the debt ceiling problem.

Secondly, the debt ceiling crisis is a concrete manifestation of the insufficient governing capacity of the US government. The development of any country requires government funding, but the days of not being able to make ends meet with the amount of money spent on tasks are always difficult to sustain. Generally speaking, the proportion of outstanding treasury bond in GDP should not exceed 60%, which is a healthy indicator. Although some people believe that a moderate fiscal deficit is beneficial for economic development, the current size of the US federal debt has exceeded $31 trillion, reaching 124% of GDP and is continuously rising.

There are two reasons for the US debt to keep hitting new highs: first, the government is selfish, blindly greedy for utility, blindly focusing on immediate results, ignoring income and investment efficiency when spending; The second is to not reflect on oneself when unable to make ends meet, but to overdraw towards the future, live beyond one's means, borrow money from the world, and shift risks. Therefore, the fundamental issue lies in debt, not the debt ceiling. The US government has always regarded raising the debt ceiling as a ultimate solution to the problem of debt default, weaving big traps with small profits and artificially ignoring the hard truth of debt repayment, which has a strong sense of "where will the flood be after I die". This is not only a problem of insufficient governance ability, but also reflects the irresponsibility of the US government.

Thirdly, the internal struggles between the two parties have intensified the contradictions. Overall, the ideas of the Democratic Republic and the Democratic Republic on the issue of debt ceiling are contradictory, but the degree of opposition varies in different historical stages. In the past, there were still some basic consensus between the two sides, and they were able to actively seek reconciliation before the crisis came. However, in recent years, there has been a clear division within the two parties, and the influence of populism and political polarization within the party has surged. Extreme factions that are different from traditional backbone forces have emerged within both parties, and their power has continued to grow. They are no longer afraid of creating party divisions, which is particularly evident within the Republican Party.

Currently, in the House of Representatives, where the Republican Party has a slight advantage in seats, more than 20 members of the Republican "Liberal Party" have been advocating for independence. During the process of electing the Speaker of the House of Representatives earlier this year, these individuals demonstrated a tough stance of refusing to compromise to their own candidate McCarthy. On the issue of debt ceiling, they also do not take McCarthy seriously and try to use their advantageous position to seek personal gain. Similarly within the Democratic Party, the so-called "progressives" have formed a clear constraint on the Biden administration. In the recent vote on the debt ceiling bill, 149 Republican lawmakers and 165 Democratic lawmakers voted in favor, while 71 Republican lawmakers and 46 Democratic lawmakers voted against, indicating that there are significant opposition groups within both parties causing trouble for the mainstream camp. As long as they exist, even if the mainstream of both parties tries to reach a compromise on the debt ceiling issue as soon as possible, it will be difficult.

Fourthly, the debt ceiling issue has already become a tool for both parties to combat their opponents. The debt ceiling is nominally a government governance issue, but in reality, it has always been a bargaining chip used by both parties to combat their opponents. It can be seen from the game between the two sides that since 1960, the US debt ceiling has been raised 78 times, including 49 times during the Republican presidency and 29 times during the Democratic presidency. This difference in data contradicts the basic beliefs of both parties. Republicans in Congress are generally opposed to raising the debt ceiling, but when they control the White House, they do not mind going against their declared beliefs.

In addition, although both parties support reducing some federal spending, there is a clear disagreement on the projects that need to be reduced. The goal of the Republican Party is to reduce defense spending and some domestic spending programs, including federal law enforcement, healthcare, combating illegal immigration, addressing climate change, environmental governance, and other funding; And these are precisely the investment priorities that Democrats value.

Taking Trump's performance as an example. During his tenure, he signed bills three times in support of raising the debt ceiling, but now he calls on Republican colleagues to not give in to Biden. If the Democratic Party does not compromise, "you must let default occur.". However, after reaching a compromise between the two parties, Trump remained silent and focused his main energy on promoting a golf tournament and cracking down on his presidential rival, De Santis, seeming to have lost interest in the debt ceiling issue. It is obvious that the debt ceiling issue is just a tool for them to attack their opponents, and their stance reflects party interests, even personal interests, rather than national interests.

Fundamentally, the debt ceiling crisis stems from the excessive spending of the US government, while Congress set the debt ceiling to prevent the White House from issuing excessive treasury bond. However, since records began, the size of the US government's debt has repeatedly exceeded the upper limit, and the relevant systems have not played a substantial restraining role. In fact, setting a debt ceiling is just a temporary measure, or even just a cover up, to show voters that politicians are not idle, but how much of a limit that can be continuously broken is necessary? If the United States does not reflect on its institutional roots, it will only lead to repeated breakthroughs in the debt ceiling, a continuous decline in government credit, and serious hidden dangers to the world economy that may erupt at any time due to the spillover effects of its domestic behavior.

Guangming Daily

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