The U.S. debt limit is again stoking fears across the globe. Why not just scrap the thing?

With the U.S. government causing global economic fears as it faces another problem in raising the debt ceiling, some economic analysts and lawmakers are proposing a relatively simple solution to solve this problem permanently:

Just scrap stuff.

“I don’t think there’s any reason anymore,” said Douglas Holtz-Eakin, the former director of the Congressional Budget Office, who is now president of the right-wing American Action Forum.

The biggest problem with the ceiling, said Holtz-Eakin and other observers, is that it has become politicized, and a dangerous political bargaining chip that holds the economy hostage to extract political demands.

“Congress is increasingly in a pinch on this,” said Laura Blessing, a senior fellow at Georgetown University’s Institute of Governmental Affairs. “Best case scenario, get rid of the thing.”

Some Democratic lawmakers are trying to do so, and have advocated for the reintroduction of legislation calling for repealing the national debt ceiling.

“We need to get rid of the debt ceiling. It has no function other than to let the hostage-takers ply their trade,” Massachusetts Senator Elizabeth Warren told CBC News Tuesday.

Rhode Island Senator Sheldon Whitehouse, chairman of the senate budget committee, said in a statement on Tuesday that the default threat “puts a very good point on the need to get rid of this arbitrary mechanism that does not provide benefits but has the power to get rid of it. It causes serious damage.”

The US is usually an outlier

Currently, US President Joe Biden supports increasing the government’s $31.4 trillion authorized borrowing limit. But Republican House Speaker Kevin McCarthy and other GOP lawmakers want a deal that guarantees trillions of dollars in spending cuts before they sign off on raising the debt limit.

On Tuesday, congressional leaders from both parties met with Biden to address the issue, but no progress was made.

The debt ceiling is a limit on government debt that can only be raised through congressional authorization. The money, according to the US Treasury Department, is needed for the government to meet existing legal obligations, including social security and Medicare benefits, military salaries, interest on the national debt, tax returns, and other payments.

WATCH | Biden wants to raise the debt ceiling:

The US is usually an outlier when it comes to setting the debt ceiling. Denmark also set a debt ceiling, but as noted by Mrugank Bhusari, assistant director with the GeoEconomics Center of the Atlantic Council, the Danish government set the ceiling so as not to cross, “Rendering is nothing more than a formality.”

Some other countries, including the European Union, have a debt ceiling as a percentage of GDP (60 percent in the case of the EU). But Bhusari notes that, unlike other countries, the U.S. is “unique in its inability to find a solution.”

On January 19, the US federal government actually reached the limit on the amount of money it is allowed to borrow: $31.4 trillion. That prompted the U.S. Treasury Department to use what it described as “extraordinary measures” to prevent a default — measures that included emergency changes to certain government accounts.

But in a new letter to McCarthy, Treasury Secretary Janet Yellen said the measure could end as early as June 1, meaning the U.S. would, at that point, default on its obligations.

Many economists have predicted dire economic consequences as a result of the default, which could include a downgrade in credit ratings, impact on loans, negative impact on the dollar, and a potential crash in the financial markets, with thousands, if not millions, of job losses. – and all leading to recession.

‘What’s the exact opposite’

Holtz-Eakin said that until World War I, Congress would vote on every debt issue, which was ineffective when trying to finance the war.

He created a debt limit so that the Treasury could borrow when needed, just under the limit. And when those limits need to be raised, the department can consult with Congress, he said.

“Ironically, it was meant to make life easier for the Treasury. And now it’s doing the opposite.”

For decades, votes to raise the debt limit have largely passed without incident. But in 2011 that changed, as the House, under Republican control and influenced by the Tea Party, ran on a promise to vote on every dollar spent, Holtz-Eakin said.

“Republicans said, ‘We’re going to vote on every dime,’ which means they now have votes to increase the debt limit. Almost no one wanted to do it,” Holtz-Eakin said. “Then partisanship slowly began to infect the Senate as well. And now we’re in a position where it’s a real political hot potato.”

Those who support keeping the debt limit will say that forces Congress to “occasionally look at ourselves in the mirror and say ‘we’re spending too much, let’s get our act together,'” Hotlz-Eakin said.

“But I just don’t believe the evidence shows that that’s true.”

‘We must not hold the US economy hostage’

Historically, the debt ceiling has not been a tool for fiscal restraint, Blessing said. There may be some impact on the periphery, but certainly nothing significant, he said.

“If you want to talk about fiscal restraint that has a transformative nature, I can’t imagine a push, a statutory and / or procedural tool that is more inappropriate for a far-reaching exercise and requires expertise as a debt ceiling.”

However, Louise Sheiner, policy director for the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, said the debt ceiling was used as a political threat.

“We shouldn’t be holding the U.S. economy hostage and we shouldn’t be holding the credibility of the U.S. government hostage like this,” he said. “Not a good way to gain political influence.”

Although some Democratic lawmakers may push to eliminate the ceiling, Blessing said he’s not optimistic it will happen. Biden himself, just last year, said the idea of ​​eliminating the debt limit would be “irresponsible.”

“It hasn’t gotten enough priority among political actors of both parties in the US,” Blessing said. “[And] realistically, we see some politicians who consider themselves fiscal hawks.

What is the alternative?

While eliminating the debt ceiling may not be in the cards, there are other recommended alternatives to work with.

In 2011, during the debt ceiling debate, senate minority leader Mitch McConnell drafted a plan that would allow president Barack Obama to raise the debt limit. This would burden the president, and allow him to do so, as long as two-thirds of Congress did not pass a resolution denying the president’s request.

White House officials are also reportedly looking at a clause in the 14th Amendment that could allow the president to raise the limit, arguing it would be unconstitutional if the US defaults on its payment obligations.

Finally, there is the trillion dollar coin. The idea here is that the US Mint can mint $1 trillion in coins, deposit them at the Federal Reserve, and the government can pay off its debt obligations with those funds.

But many experts have a problem with this other method of reducing the debt ceiling problem.

“I think they’re gimmicky,” Holtz-Eakin said “But I think they’re also dealing with the underlying substantive issue, and that’s they will be perceived as a Hail Mary through desperation by financial market participants, rating agencies, and they will damage the future credit of the United States.