If you understand what the debt ceiling is, you can see how silly the entire construct really is. In essence, it’s a constraint that the government is guaranteed to hit only because it chooses to appropriate spending that causes us to hit that level. I keep describing it like eating a pizza and then tying your large intestine in a knot while you threaten your stomach not to digest the food. You know the food is going into your large intestine at some point because you already chose to eat it, but here you are like an idiot threatening your stomach not to digest the food. Of course, you inevitably untie the knot in your intestine because you know it would cause big problems if you didn’t. That’s basically what Congress does every time we run into this silly constraint.
Unfortunately, some politicians are choosing to use the threat of default to get what they want. And I think the last few weeks prove how utterly dangerous and unreasonable it is. Using the threat of defaulting on your own country is not a reasonable way to legislate. If politicians don’t want higher debt limits then don’t appropriate the spending. It’s that simple. No one needs the debt ceiling to impose this constraint. It’s dangerous and unnecessary.
Thankfully, I am not the only person who thinks this. In an interview yesterday, Warren Buffett said the same thing I’ve long argued – that the debt ceiling is a stupid and pointless constraint:
“Well it’ll be one of the most stupid things that’s ever happened. But the idea that we should take 237 years when we built upper reputation for behaving properly in financial matters and blow it because of 535 people in Washington, you know, it’s insanity.
…
it is totally asinine to have a debt ceiling at all and to use it as a means to try and get your way out of anything else, whether it’s abortion, gun control, Obamacare, you name it. It’s — it’s a political weapon of mass destruction that shouldn’t be used. And it’s being used, and I think by the — I think it will get resolved. But I think it never should be used again. I think both parties should say, “This is ridiculous. Why worry the world? Why worry the American people?” It was something that’s unthinkable, basically. “
It’s time to get rid of this silly “constraint”. It serves no purpose and has now turned into a bargaining chip that totally irresponsible politicians believe is a reasonable tool for legislating.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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