The U.S. Mostly Stands Alone On Debt Ceiling Politics

Denmark is the only other country with a debt limit -- the rest of the world's industrialized nations don't have one.


It happens so frequently that you might think it’s routine: public spending rises to levels that threaten to breach the debt ceiling, the congressionally mandated limit on the money Washington can borrow to fund the government’s day-to-day business. The White House and the Federal Reserve, the final authority on America’s financial credibility, issue warnings about the U.S. defaulting on its debt unless Congress raises the ceiling. Congress demands concessions, saying it wants to rein in spending; a political fight ensues.

But from a global point of view this is anything but routine. Only one other industrialized nation has a debt ceiling—that’s Denmark—and the U.S. stands alone in allowing the limit to be treated as a political bargaining chip.

“It does seem a little absurd,” Las Olsen, chief economist at Danske Bank, the largest bank in Denmark, told The Messenger. “You have politicians who decide what to spend and how much to tax, but then they cannot decide on borrowing the difference.”

It’s the spending, stupid 

This twinning of politics and debt management is what sets the U.S. apart from its international counterparts—Denmark included. 

For everyone else, debates over spending are confined to the budgeting process, when governments lay out their plans, outlining what they want to spend and how much money they want to raise from taxes. The level of debt required to fill the shortfall between those two variables — total spending and revenue — follows from those deliberations. 

All those other countries have their share of budget debates — nasty ones sometimes. But in the U.S. the debate effectively happens twice: first at the budget-setting stage, and then again when the budget sends government debt higher, to a point where it starts flirting with the ceiling. It's become so common that the U.S. debt limit has been raised, extended or revised 78 times since 1960.

“The analogy is with a credit card,” said Jacob Funk Kirkegaard, a senior fellow at the German Marshall Fund. “If you are concerned about borrowing, the real conversation [to have] is about spending, when you decide what to spend. It is not about the limit on your credit card.” 

Denmark’s ceiling, Kirkegaard said, exists as a way of ensuring there isn’t a blank check for the central bank, which functions independently and is responsible for borrowing. 

And to avoid the ceiling becoming a political football, the Danish limit is set intentionally high; currently, it stands at 2 trillion Danish crowns, or just under $300 billion. National government debt was just over a third of that level as of September 2022, according to the economic data tracker CEIC. The ceiling has only been raised once, in 2010, in the aftermath of the global financial crisis, when government borrowing rose to about two thirds of the level allowed by the limit. 

“The ceiling in Denmark is treated like a technical thing. It is not political,” Kirkegaard told The Messenger. 

Breaking the ceiling: the lesson from Australia

The one other industrialized country that has tried to use a debt limit as a lever to control borrowing is Australia, and that experiment didn’t last long. Australia implemented a debt ceiling in 2008, but repeated U.S.-style political fights ultimately led to its scrapping in 2013. 

As one Australian politician put it at the time, scrapping the measure was a way of returning “some maturity to the debate around debt and get rid of what has become a phony debate every time the Government has wanted to raise the debt ceiling.”

For critics of the U.S. debt ceiling, the debate in the U.S. isn’t just “phony”; it’s also dangerous, given the implications of an American default for the global economy. Meanwhile, the U.S. debt ceiling has failed to do what it was meant to do: rein in the nation’s debt.

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