by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Ryan Young writes for National Review Online about the pending debate over raising the federal debt ceiling.
The red wave that wasn’t has consequences for policy-making in Washington. One result of the GOP’s new, narrow House majority is that outlandish and marginal policy proposals from the fringes of both parties will get more attention than they otherwise would. The coming battle over raising the debt ceiling will serve as a case in point.
The debt ceiling, now at about $31.4 trillion, limits the amount of total debt the federal government can take on. For context, this currently is greater than the United States’ GDP of $25.7 trillion.
The government runs deficits every year, so Congress has to raise the debt ceiling every so often. If it doesn’t, the government cannot float new bonds, risking a default and a partial shutdown. The government is on track to hit the debt ceiling around July and must raise it before then.
Debt-ceiling raises are usually routine, but with the aforementioned, narrow GOP majority in the House, this year’s vote is no sure thing. Pundits are already floating ideas of varying quality to work around the impending congressional drama.
Among the worst is a revival of the trillion-dollar-coin thought experiment that made the rounds in the media a few years ago. The Treasury Department could, in theory, mint a single, platinum coin worth $1 trillion and deposit it with the Federal Reserve, which would use it to pay off debt and get back under the debt ceiling.
The main reason this wouldn’t work is that money is supposed to match real output if it is to retain its value. If the amount of money goes up by a trillion dollars while the amount of goods and services stays the same, the result is inflation.