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Why the U.S. is so unique in how it handles its debt


The U.S. increased its debt limit again this week, averting potential financial catastrophe, but only until December, when the government is next expected to hit its debt ceiling. It wasn't always this way, though. Adrian Ma and Sally Herships with NPR's podcast The Indicator take us on a trip through history to figure out why the U.S. seems pretty much alone in how it handles its debt.

ADRIAN MA, BYLINE: How much of your psychic space these past few weeks is taken up by debt ceiling?

SIMON RABINOVITCH: Well, regrettably, a little bit too much.

MA: Simon Rabinovitch writes for The Economist, where he is U.S. economics editor.

SALLY HERSHIPS, BYLINE: And he says there was a time in American history when all of this drama around the debt ceiling just didn't happen.

RABINOVITCH: You can go back a little over a century. Before 1917, you know, there was no debt ceiling in America. Congress would just issue authorization to the Treasury for every borrowing that it would do, kind of bond by bond, loan by loan.

HERSHIPS: But that was sort of inefficient, and it really became a problem when the United States got into World War I because who knows how much a gigantic war is going to cost? I feel like a lot.

MA: You couldn't even imagine it, right? So Congress decided to basically give the Treasury an allowance. And it did that by passing the Liberty Bond Acts of 1917.

RABINOVITCH: So the initial idea was to actually give the Treasury more leeway. You know, you could do whatever borrowing you need to do; we're not going to authorize you on a bond-by-bond basis, but there's this overall ceiling that you got to stay under.

MA: And since then, this thing that has morphed into the debt ceiling has been raised or suspended dozens of times to keep up with national spending.

RABINOVITCH: So whereas other countries do think about trying to rein in their debt, you know, they don't want to have a situation where every couple of years, they're threatening default for political reasons.

MA: So what you're saying is we're special.

RABINOVITCH: America is exceptional. There is no question about that.

HERSHIPS: Maybe he's being a little sarcastic, but also kind of not. One of the only other examples of another country with a debt ceiling is Denmark, but their ceiling is so high that the government's debt is nowhere near it. So it's not the same kind of reoccurring controversy that it is here.

MA: Most other countries don't have, you know, hard numerical caps on overall debt.

HERSHIPS: Other countries use what's called a debt brake (laughter). There's a rule that says the debt has to stay under a certain percent of the country's gross domestic product. For example, in Poland, that means staying under 60% of GDP.

MA: And in Germany, they have a target of keeping new borrowing within a third of a percent of GDP - although worth saying that rule has been suspended during the pandemic.


RABINOVITCH: I think, sadly, the political reality in America is that, you know, although the debt ceiling, you know, as it exists in America - nevertheless, politically, it's clearly a very powerful tool.

HERSHIPS: A tool that for a lot of politicians seems a little too powerful to put down.

MA: And it's kind of ironic when you think about it. The debt ceiling began as this way to allow one branch of government, the executive branch, to support another branch, Congress, so they could more easily spend the money they said they wanted to spend.

HERSHIPS: Yeah, but nothing about this feels easy right now (laughter).

MA: Yeah, think about that when you see lawmakers debating this in the coming weeks.

HERSHIPS: Sally Herships.

MA: Adrian Ma, NPR News. Transcript provided by NPR, Copyright NPR.

Sally Herships
Adrian Ma
Adrian Ma covers work, money and other "business-ish" for NPR's daily economics podcast The Indicator from Planet Money.

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