just get rid of the debt ceiling once and for all

Okay, this whole will-they / won’t-they about the US Congress raising the debt ceiling is a bit crazy. Let’s stop back for once brief moment and look at what the entire debate is over. It’s not finance. It’s politics. But it really is finance and that’s the problem. Yes, that’s right – we’ve elected lots of stupid people to Congress. Oh my.

If memory serves me and various news reports on the debt ceiling crisis are accurate, the United States is one of about two countries in the world who have a debt ceiling. The other is Denmark I believe. I have no idea how the debt ceiling works in Denmark, but let me do a recap of how the debt ceiling works in the US. There are two main factors to be aware of.

First, requests for spending and for budgets are typically approved by Congress. For example, the annual budget of XYZ department in the government? That’s decided upon by Congress. Similarly, Congress – yes, the same one – decides on taxes. How much income do you need to make before you pay taxes? How much? Which deductions can you claim? What is the rate of selling stock held for less than twelve months? You get the point. So what’s the point of this? The point is that Congress determines how much income the federal government takes in, and Congress also decides on how much money the federal government spends. There is some elementary school teacher somewhere who is jumping up and down, exclaiming “subtract the spending from the income!”

Second, we come back to the debt ceiling. The debt ceiling is an artificial and fairly useless separate law. That law basically sets in stone the maximum amount of money the US government can owe – ie be in debt by – at any given time. That maximum number is written into the law and is called the debt ceiling.

So the situation the financial world is all in a mess amount is that Congress has allocated and approved so much spend that the US’s total debt is now quickly approaching the maximum debt ceiling. August 2, 2011 I believe is the day when the US government will hit that ceiling, barring any change.

One may make a logical argument that since Congress already has approved all the money flowing out of the US Treasury, presumably Congress was also okay spending that amount. And since Congress has done or not done anything to change tax rates or close loopholes, presumably Congress is okay with the revenue flowing in. So it strikes me as completely unbelievable that we are seriously having a debate in Congress about whether to raise the debt ceiling or not. If you don’t want to raise it, try not approving new spend next time without an income source.

So I’m torn between eliminating the debt ceiling all together – bye bye stupid limit, and firing all the stupid people in Congress. It’s not all of them, mind you, but it’s most of you. Be on notice!

Am I missing something?