By John Carney – Felix Salmon calls the debt ceiling “built-in systemic stupidity” and asks why we have it at all.
I’m happy to provide the answer.
The first answer is that the constitution requires a debt ceiling, at least indirectly. Congress is saddled by the first article of the constitution with the power to “borrow Money on the credit of the United States.” It long ago abdicated a portion of this power by enabling the Secretary of Treasury to approve debt issuances without the specific approval of Congress. But its not clear that, absent a constitutional amendment, Congress can delegate this power altogether.
Prior to 1917, Congress had to approve each individual issuance of US debt. This power was rarely used. The first post-constitutional issuance of national debt was undertaken to pay for the War of 1812. The next time the US government went to the debt markets was during the depression of 1837-1843. In these issuances, further votes of Congress were required to authorize the government to make principal and interest payments as they became due.
It wasn’t until the Mexican War in 1847 that Congress first authorized the US Treasury to issue debt on which interest and principal payments were automatically approved. The real debt explosion, however, occurred during the Civil War—when the national debt ballooned to $2.75 billion from just $58.5 million. But even during the Civil War, the specific kind of debt issued by the US Treasury had to be approved by Congress. Both the terms of the debt and the interests rates to be paid were subject to the approval of Congress.