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The debt ceiling is not analogous to your credit limit. Your credit limit is imposed by the institutions that loan money to you. The US debt ceiling is impose

by sethg 15y ago

The debt ceiling is not analogous to your credit limit. Your credit limit is imposed by the institutions that loan money to you. The US debt ceiling is imposed by Congress. The closest analogy to your credit limit is the interest rate for Treasury bills; as investors become more concerned that the US will either become insolvent or inflate its way out of debt, they will demand a higher interest rate for that money. T-bill rates are as low as they’ve been since the 1940s, so clearly the markets are happy to loan the government money; Congress is just arguing about how much to allow itself to borrow.

nhaehnle 15y ago
Actually, neither is really analogous to an individual credit limit. As you correctly point out, the debt ceiling is an entirely voluntary constraint that the US government imposes on itself (if, as is appropriate from an economics point of view, you take the government to be the union of executive, legislature and judicative branches). The interest rate for short-term T-bills necessarily follows very closely the monetary policy targets set by the Fed. In fact, the Fed and Treasury cooperate all the time to control the supply and demand of T-bills, in order to make sure that the interest rate established by the market matches the target rate - that's just part of normal day-to-day operations, see e.g. http://pragcap.com/resources/understanding-modern-monetary-system http://pragcap.com/resources/understanding-modern-monetary-s... Long-term interest rates behave slightly differently, and some people believe that useful information about the state of the economy can be extracted from them. This is still not analogous to a credit limit, because those long-term rates can never actually constrain the US government financially. After all, Fed and Treasury can always work together to reduce the supply of long-term bonds, which will drive down the interest rate.

by sethg 15y ago

nhaehnle 15y ago

Actually, neither is really analogous to an individual credit limit. As you correctly point out, the debt ceiling is an entirely voluntary constraint that the US government imposes on itself (if, as is appropriate from an economics point of view, you take the government to be the union of executive, legislature and judicative branches). The interest rate for short-term T-bills necessarily follows very closely the monetary policy targets set by the Fed. In fact, the Fed and Treasury cooperate all the time to control the supply and demand of T-bills, in order to make sure that the interest rate established by the market matches the target rate - that's just part of normal day-to-day operations, see e.g. http://pragcap.com/resources/understanding-modern-monetary-system http://pragcap.com/resources/understanding-modern-monetary-s... Long-term interest rates behave slightly differently, and some people believe that useful information about the state of the economy can be extracted from them. This is still not analogous to a credit limit, because those long-term rates can never actually constrain the US government financially. After all, Fed and Treasury can always work together to reduce the supply of long-term bonds, which will drive down the interest rate.