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Tuesday
Jul192011

Debt Ceiling: Present in Just One Other Democratic Country

Stockbyte/Thinkstock(WASHINGTON) -- It’s two weeks and counting until some argue financial apocalypse could descend upon U.S. markets, yet lawmakers are still seemingly eons away from striking a deal to reduce the deficit and raise the debt limit. The ferocity of the debate coupled with the warnings of impending doom begs the question, why does America have a debt ceiling in the first place?

A report released Monday by Moody’s analyst Steven Hess points out that the United States’ debt limit “is an uncommon attribute not shared by most” countries. The U.S. is the only democratic country, besides Denmark, in which Congress has to approve borrowing separately from spending. In most other countries the authority to borrow money is inextricably tied to the authority to spend money.

For example, in Canada the executive branch can borrow as much money approved to spend in the yearly budget.  In Sweden, borrowing is also linked to the budget, although the legislature does not decide how much money the Finance Minister can borrow but instead decides how many programs it can fund.

And in the United Kingdom and New Zealand, the Treasury department has the authority to borrow as much as they need to fund congressionally approved spending.

Only Denmark has a system similar to the United States where the legislature has to approve increases to the debt separately from approving the budget. The Danish set the ceiling high enough so that it never slows the process of borrowing money and they can avoid political conflicts like the one currently gripping the U.S.

Barry Bosworth, a senior fellow at the Brookings Institute, said the U.S. debt ceiling “has no logical basis.”

Congress, through budget and appropriations bills, has sole authority to decide how much the government will spend, so he said “it makes no sense to have a secondary rule to then object to the deficit that emerges from the other decisions.”

The idea behind creating a debt ceiling “was to make Congress slow down its spending, be more careful about what it expended and think more about the obligations it was pursuing,” said former Minnesota Rep. Bill Frenzel, who served as the ranking member of the House Budget Committee and was an advisor to Presidents Bill Clinton and George W. Bush.

The debt limit was established during the lead up to World War II as a way to give the Treasury "freer rein to manage the federal debt as it saw fit,” according to a Congressional Research Service report.

Since 1939 when it was first created, the U.S. has never exceeded the debt limit and gone into default.

Copyright 2011 ABC News Radio







ABC News Radio