Leave it to the Washington Post to enthrall the geek in me with their irony-filled debt ceiling story…
So what caused the debt ceiling to exist?
… It started with a war.
In the early decades of the Republic, Congress preferred to issue debt for specific purposes, such as issuing bonds to build the Panama Canal. During the Spanish-American War of 1898, Congress authorized the Treasury secretary to issue short-term debt and some longer-term debt with specific limits on maturities.
But World War I was a conflict with unknowable costs, making targeted legislation difficult. At first Congress established a $5 billion limit on new issues of bonds, along with the immediate issuance of $2 billion in one-year certificates of indebtedness, in the First Liberty Loan Act of 1917.
But very quickly another law was needed — the Second Liberty Bond Act of 1917 — in which Congress set a general limit on borrowing: $9.5 billion in Treasury bonds and $4 billion in one-year certificates. This freed the Treasury secretary to begin to figure out the best mix of securities to issue, without nearly as much congressional oversight as before.
By the end of World War I, the limit on Treasury obligations had been raised to $43 billion, which was considerably more than the $25 billion in outstanding public debt in 1919. For decades, future increases in the national debt were simply amendments to the Second Liberty Bond Act. But it was not in 1939 — on the eve of World War II — that Congress eliminated all of the different limits on types of bonds, thus creating an overall aggregate limit on the national debt.
We learned much of this from an interesting 1954 history of the debt limit, published in the Journal of Finance, by H.J. Cooke and M. Katzen, which was posted on the Monkey Cage blog. The article notes that the debt limit generally was raised without controversy until a White House request to raise the limit in 1953 was sidetracked in the Senate, “where the ceiling was viewed as an instrument for forcing economy on the executive branch of the government.”
Hmm, that sounds familiar.
But in that case, it was a Republican president, Dwight D. Eisenhower, who faced a roadblock from a Democratic senator, Harry F. Byrd of Virginia, who then chaired the Senate Finance Committee. …
Well, not quite on Bird, but there’s a correction to that and more of the story at the WaPo.