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In recent years, the debt ceiling has become a contentious issue in Congress and the White House. It has resulted in multiple showdowns and a threat of default by the US government. However, the US debt ceiling is an arbitrary limit that  Congress imposes on how much money the treasury can borrow.

A Bit of History About Our Money Supply

At the turn of the 20th century the amount of money in circulation became a problem as the economy was struggling to grow. The amount of money in circulation was limited by the supply of gold and silver because paper money was redeemable in that gold and silver. Congress ended that limitation, and created the Federal Reserve in 1917 to manage the money supply.. Now, since modern currency is no longer backed by gold or silver, the amount of money created is not limited by the mere existence of that gold or silver or anything else physical, for that matter.

A sovereign currency country can simply print as much money as it wishes to pay off its debt any time it wishes without causing inflation. This government sets the laws that determine the final means of payment called legal tender, regulates banking and finance, and establishes monetary policy. It also imposes fees, taxes, tolls, tariffs on its citizens that have to be paid using the government's money. That creates the ultimate demand for its currency. Everybody needs it because you can no longer pay the government with chickens or such.

The debt ceiling limit legislation was created in 1917 to aid the US spending during the 1st world war. It was rarely an issue until 1995 when Newt Gingrich used it to aggravate the Clinton Administration and create division within the House of Representatives. One could easily make the case that Gingrich is the Godfather of our current political polarization. Up until the time of Gingrich, members of both parties socialized with each other and negotiated with each other on behalf of the American people.

Why does the US really have a national debt? The national debt primarily is to limit the Treasury and the Congress from creating money at will and to provide interest income to certain parties. It is ultimately not meant to raise cash for it to operate.

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How Much Is The US National Debt?

The US National Debt currently stands at $31.8 Trillion. It sounds like a lot and it is. If the cost to borrow is 2% then the payment on that debt is $620 billion per year. And if the rate is 5% which it is currently, then that amount balloons to $1.5 trillion. Currently non-discretionary spending is about $1.7 trillion. This does not include Social Security or Medicare as those programs are government-mandated and -administered insurance programs funded by the insured with payroll deductions. This amount is not included in federal "spending" as many republicans like to contend. It is simply hocus pocus by them to hide the truth. As long as the interest payments are not pulled from other government spending, then the interest is not a problem. But if it was, that would harm the people and the economy.

Most of this national debt has been created in modern times mostly by republicans as a result of tax cuts for the wealthy and for corporations. Had the tax rate been kept at those high rates that existed after WWII, frankly too much money would have been raised. But one must question the fact that way too much has gone to the wealthy and too little to increasing economic capacity with infrastructure, research and development, education, healthcare, etc. It has created one of the most unequal societies in the modern history of the developed world. That inequality simply breeds resentment in the general population and leads to the political polarization we have today.

Who Actually Holds US National Debt?

The US national debt is held mainly by 2/3 American entities and !/3 foreign entities. These entities include the Federal Reserve, the social security reserve fund, pension funds, hedge funds and individuals. A person can actually lend money to the US government via "I bonds" as a hedge against inflation. At the high point of current inflation, I-bonds were paying 9.62% and are now paying 6.89%. All citizens or permanent residents can do the same.

Yes, many countries hold some US debt. And that US debt is very much in demand. As a monetary leader in the world, it helps stabilize the world currency markets and investments. The national debt is simply a safe haven for money.

National Debt Is Not The Same As Household Debt

There is a common falsehood that government debt is the same as our household debt. If you or I borrow money, we mostly have to pay it back or go bankrupt. However, that is not true for our government.

Let's clear up this BS that mostly republicans are spewing out. When a country borrows from itself is it really borrowing? And if it can create money at will then is it really borrowing or is it doing something else?

The time to be concerned about spending is obviously when it is actually spent and not when it is paid back as that does not affect the supply of money but only makes those with money find other investments. That of course will inflate investments but not consumer goods and services.

This is not to say that sovereign currency countries like the US can create and spend as much money as they want. They can't -- and if they do they will create inflation. The spending must match the economy's ability to absorb the money and to match its economic capacity and demand. That said, money spent that increases the economic capacity is the first place to spend money. For instance the money spent on the Eisenhower Interstate Highway System and the JFK moon landing program by NASA greatly sparked economic capacity and  innovation.

So the next time you hear this hocus pocus nonsense about the national debt give 'em a raspberry. Better still, show up and vote them out of office. They don't have your best interest at heart.

About the Author

jenningsRobert Jennings is co-publisher of InnerSelf.com with his wife Marie T Russell. He attended the University of Florida, Southern Technical Institute, and the University of Central Florida with studies in real estate, urban development, finance, architectural engineering, and elementary education. He was a member of the US Marine Corps and The US Army having commanded a field artillery battery in Germany. He worked in real estate finance, construction and development for 25 years before starting InnerSelf.com in 1996.

InnerSelf is dedicated to sharing information that allows people to make educated and insightful choices in their personal life, for the good of the commons, and for the well-being of the planet. InnerSelf Magazine is in its 30+year of publication in either print (1984-1995) or online as InnerSelf.com. Please support our work.

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Here is an article that will explain further about the national debt. There are many good parts but some I would dispute.

Why America Has A Debt Ceiling

by Steven Pressman, Professor of Economics, The New School

Republicans and Democrats are again playing a game of chicken over the U.S. debt ceiling – with the nation’s financial stability at stake.

The Treasury Department on Jan. 19, 2023, said the U.S. hit its current debt limit of US$31.38 trillion and that the government had begun to take “extraordinary measures” – which could extend the deadline until June 5 – to avoid default. On Jan. 24, Treasury Secretary Janet Yellen urged Congress “to act promptly to protect the full faith and credit of the United States.”

But it’s not clear whether Republicans in the House will agree to lift the debt ceiling without strings attached – strings that President Joe Biden and Senate Democrats have vowed to reject. Right-wing Republicans demanded that, in exchange for voting for Kevin McCarthy as speaker of the House, he would seek steep government spending cuts as a condition of raising the borrowing limit.

Economist Steven Pressman explains what the debt ceiling is and why we have it – and why it’s time to abolish it.

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