"The decision to free this bill averted what might have been a serious government financing crisis"
So wrote the Pittsburgh-Post Gazette on December 4 1973, after president Richard Nixon signed a bill increasing the debt ceiling 'temporarily' to $475.7 billion. The temporary nature of the increase of course referred only to the fact that everybody knew that the new ceiling would likely be reached again by June of 1974. The reason why the increase had been held up was that several senators wished to attach an amendment that would have introduced and regulated public financing of election campaigns.
The debt ceiling ritual often invites political brinkmanship. Usually this happens when there is cohabitation, i.e. when the party in control of Congress is different from the one controlling the administration.
A recent article at the Big Picture enumerates all the debt ceiling wrangles since 1939. What immediately becomes clear when reading through these examples of past debates is that the party that is out of power always accuses the party in power of fiscal recklessness. Every single time the accusation was well founded: no matter who was in power, he usually was indeed fiscally reckless.
Many people fondly recall the most recent exception to this trend under the Clinton administration. However, the Clinton administration was forced into a certain degree of fiscal rectitude by a Republican Congress, which at the time also used the debt ceiling debate to press for a spending slowdown and was prepared to induce two temporary partial 'government shutdowns' of 6 and 21 days respectively in 1995 and 1996 (apart from government workers, it seems likely that nobody missed the government much when it was 'shut down').
Moreover, Clinton simply was lucky – his presidency coincided with the collapse of Soviet communism, which meant that it was politically feasible to lower the rate of growth of defense spending. In addition, during Clinton's second term the secular bull market in stocks entered its mania phase and went parabolic. The economy boomed concurrently, as the Fed accommodated one of the biggest private sector credit expansions in history. Due to hewing to a 'price stabilization' policy in a time period when the economy underwent strong productivity growth as the application of computer technology percolated through every sector of the economy, it tolerated a massive increase in the credit and money supply – a situation that was very reminiscent of the “Roaring 20's”. We have previously discussed the introduction of 'sweeps' in the mid 1990's, which enabled the banking system to engage in near unlimited inflationary lending, as the Fed essentially did away with reserve requirements. The government enjoyed massive revenue increases as a result of all this.
Looking back at the 1995-1996 debt ceiling impasse under the Newt Gingrich-led Congress, what stands out is that the Republicans at the time didn't even want to cut spending – they only wanted to slow its growth. As the NYT reported at the time:
“The Speaker also turned up the heat on Mr. Clinton for saying that Republicans had proposed cuts in Medicare, Medicaid and the earned-income tax credit at his Thursday news conference. Mr. Gingrich said that Republican plans for those programs included increased spending, but they proposed spending that would increase more slowly than the President's budget.
Mr. Gingrich said that the President was unfairly characterizing a proposed cut in the rate of growth of spending as a cut in spending. He said that under the Republican party's seven-year plan, Medicare spending, for example, would go to $7,100 a person from $4,800.
Earlier, addressing an audience of 650 gathered to raise money for Representative Bill Baker, a local Republican, he poked fun at the President over the issue. "Maybe it's not his fault," Mr. Gingrich said. In "an age when many people have unusual problems, he said,
"maybe the President is factually challenged."
(emphasis added)
It should be noted here that budget surplus of the late Clinton years was really a deficit in disguise. It included the social security surplus, which the government has traditionally never saved, in spite of the actuarial certainty that the financing of social security is unsustainable in the long term. If 'unfunded liabilities' had been properly accounted for, there would not have been a surplus.
US 'debt limits' from 1961 to 2011, via CBC News. Note how public debt growth really took off in the 1970's, shortly after Nixon dropped the 'gold anchor'. This unfettered debt growth is clearly a function of the irredeemable fiat currency system.
