For those on Capitol Hill who threaten default as a means to compel policy concessions, the destructive power of default is what makes it such an attractive tactic. But this time may be different.
And that faction has already demonstrated it has unprecedented leverage over the new speaker of the House, Kevin McCarthy.— is not in the Constitution nor in any of its 27 Amendments. It's just a statute, a law, enacted as part of legislation allowing the government to issue bonds to finance U.S. participation in the First World War in 1917. It has been in place, causing headaches and prompting evasive action, ever since.
As a result, presidents have gone on asking Congress to raise the limit and congressional leaders have found ways to get the votes to do so. And the national debt, and the limit, have continued to rise. Under Bill Clinton, the limit went to about $6 trillion and under George W. Bush to roughly $11 trillion . The last time a new limit was set under Obama it was $18 trillion and the last time under Donald Trump it was $22 trillion . Thereafter, in the pandemic, Congress suspended the limit so as to spend without even minimal restraint. The debt rose to more than $27 trillion. The current limit, set in 2021, is $31.4 trillion.
World credit markets depend on this relationship as their baseline. And that affects markets in commodities, stocks and bonds and all other asset classes. The full faith and credit of the U.S. is foundational to the economic well-being of this country, its trading partners and the world at large. "Politicians who are rightly worried about the nation's unsustainable borrowing path should take a hard stance against new borrowing and oppose legislation that would add to the debt ... rather than threatening not to pay the bills on borrowing that has already been incurred."
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