Public Debt Act of 1939 – An Asinine Law
Prior to 1940, when Congress passed a bill involving funding/spending it looked at the expected cost and the impact it would have on potential future debt – in other words, members asked whether the country could afford it.
In 1939 it passed the Public Debt Act.
Under this Act, Congress established an aggregate limit, or “ceiling,” on the total amount of new bonds (debt) that could be issued. The present debt ceiling is an aggregate limit applied to nearly all federal debt.
Since 1940, Congress has passed legislation raising the debt ceiling 99 times. There really isn’t an alternative to “raising the debt ceiling” because the alternative is default. That in turn would be devastating to the country’s current economy and its economic future.
But the 1939 law requires Congress to separately vote on spending the money, in aggregate, for the money it has already voted to spend.
Now you may understand why I call this law asinine.
Every time the Treasury Dept. calculates the date the government will not be able to borrow the money to continue standard operations, Congress must raise the amount the government is allowed to borrow based on the “debt ceiling” it has set previously.
It’s a fiscally irresponsible and dangerous game our government is playing. With the country’s debt now approaching $36T, we currently spend over 20% of the federal budget on debt service – that is, interest on treasury bonds and notes. And there is no end in sight.
National Debt as % of GDP
Year Percent Total Debt
2000 55% $5.7T
2023 123% $34.0T
Without correction, that percentage will exceed 200% soon. That’s bankruptcy, folks.
With this obvious and treacherous scenario, we still have people who vote for representatives to the government who promise to spend more than that already on the books. It’s like the national debt is something foreign or of no concern because it’s not a top-of-mind voter issue while candidates are campaigning or while in office.
It’s one of the reasons Congress loves the 1939 law. Bills impacting a deficit are not considered on their own. It also allows Congress to regularly make campaign “hay” by “saving us all” from a ‘government shutdown.’ Congressional members become heroes for the efforts to raise the debt ceiling. Incredible!
Last year Standard and Poor’s and Fitch Ratings downgraded U.S. long-term government debt citing the country’s ominous fiscal outlook, a dysfunctional political system, and recurring debt limit brinkmanship.
While significant near-term negative economic consequences for the U.S. are unknown, losing the AAA rating should serve as a sign to policymakers of the urgency to get the fiscal house in order for the longer-term.
If it continues deficit spending and raising the debt – and increasing debt service, investor confidence in and demand for U.S. Treasury securities will diminish, driving up the already burdensome borrowing cost for the federal government, costs for which taxpayers are liable. Taxpayers are obviously liable for the debt as well.
Further, when investor confidence wanes to an even greater extent, those investors will seek other economies in other countries in which to invest their capital. That translates to a triple whammy for taxpayers:
- More and more of their taxes go to pay for the debt, and
- Economic activity and GDP will decline, and
- Good and plentiful jobs will move elsewhere – meaning taxpayers will be making less, paying less in taxes but paying a higher percentage of their incomes in taxes.
“The dog will be chasing its tail” – going nowhere – and digging a deeper hole.
The 1939 Public Act allows our governmental representatives to not be responsible for individual bills passed to increase spending and increasing an already ‘back-breaking’ debt.
Congress and White House administrations have a second way of not debating and voting on separate spending bills. It’s called an omnibus bill – which combines many appropriations into one, gigantic spending number which Congressional members rarely have time – or care to even read – and with a number which is beyond the fathom of the vast majority of voters to know and understand the consequences.
Without asinine shenanigans employed by Congress to vote for them because of what they promise they’re going to ‘give’ to various sectors of voters, there might be some sanity left in the appropriations passed by out federal representatives if they really cared.
Without that, voters – and the country – will continue on the road to economic disaster while ignoring the sound of the ‘band’ playing on – and singing the lyrics of apropos lullabies like:
Hush, little baby, don’t say a word.
Mama’s gonna buy you a mockingbird
And if that mockingbird won’t sing,
Mama’s gonna buy you a diamond ring
And if that diamond ring turns brass,
Mama’s gonna buy you a looking glass
And if that looking glass gets broke,
Mama’s gonna buy you a billy goat
And if that billy goat won’t pull,
Mama’s gonna buy you a cart and bull
And if that cart and bull turn over,
Mama’s gonna buy you a dog named Rover
And if that dog named Rover won’t bark
Mama’s gonna buy you a horse and cart
And if that horse and cart fall down,
You’ll still be the sweetest little baby in town.
*******************
Have a great and prosperous week.
Hug somebody.
References:
https://finance.yahoo.com/news/americas-dumbest-law-195145183.html
https://bipartisanpolicy.org/debt-limit-through-the-years/
https://bipartisanpolicy.org/debt-limit-through-the-years/
https://www.lyricsondemand.com/miscellaneouslyrics/lullabylyrics/themockingbirdsonglyrics.html
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