President-elect Donald Trump is now coming out strong against a conservative legislative cornerstone that has long been opposed by Democrats.
NBC News reported Thursday that Trump is calling for the abolition of the federal debt ceiling, which the next spending bill was set to raise. Should the U.S. fail to raise the debt ceiling, it could result in the federal government defaulting on its debts, which has the potential to jeopardize the global economy. Trump said removing the debt ceiling would be “the smartest thing [Congress] could do” and that he would “support that entirely.”
“The Democrats have said they want to get rid of it. If they want to get rid of it, I would lead the charge,” the president-elect said. “It doesn’t mean anything, except psychologically.”
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Trump’s announcement comes on the heels of billionaire Tesla CEO and X owner Elon Musk promising to primary any Republican who voted for the spending bill House Speaker Mike Johnson (R-La.) negotiated with Democrats. That legislation is necessary in order to avoid a federal government shutdown that would begin at 12:01 AM Saturday morning. Musk retweeted an X user’s post in support of a government shutdown until Trump is inaugurated, saying Americans would be “fine” despite a month-long delay in essential federal workers — like air traffic controllers — not being paid, and the suspension of other critical government functions.
“I agree with President-elect Trump that Congress should terminate the debt limit and never again govern by hostage taking,” Sen. Elizabeth Warren (D-Mass.) posted to Bluesky.
The debt ceiling originated in 1917, and was written into the Second Liberty Bond Act during World War I. Investopedia describes it as a measure “to regulate U.S. government spending and to keep the U.S. government fiscally responsible.” The U.S. has had to raise the debt ceiling periodically ever since 1917, which officially authorizes the U.S. government to increase the debt on its balance sheets, though doing so requires no actual federal spending.
At that time, the U.S. was still operating under the gold standard, in which all U.S. dollars in circulation were backed by gold. President Franklin Delano Roosevelt moved the U.S. away from the gold standard in 1933. And in 1973, President Richard Nixon ended the Bretton Woods Agreement, in which all U.S. dollars in international financial exchange were convertible to gold. This officially unlinked the U.S. dollar from gold, and the United States has had what macroeconomists refer to as “monetary sovereignty” for the past five decades, in which Congress alone controls how much money is in circulation through federal appropriations bills.
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Most government “debt” on the books is more simply understood as U.S. Treasury securities. Institutional investors prefer to park their money in the form of U.S. Treasury securities, as they are guaranteed by the full faith and credit of the U.S. government, whereas traditional bank deposits are only guaranteed up to $250,000 by the FDIC.
Foreign governments hold roughly $8 trillion in U.S. Treasury securities, but many other wealthy investors also prefer to keep their money in the form of U.S. Treasury securities over bank deposits and stocks, which are far more volatile and high-risk. NBA star Giannis Antetokounmpo, who is from Greece (which famously experienced numerous bank failures after it abandoned the drachma for the euro), reportedly put his money in more than 50 banks to ensure all of his deposits would be covered by the $250,000 FDIC limit. However, billionaire Milwaukee Bucks owner Marc Lasry encouraged Antetokounmpo to instead put his money in U.S. Treasury securities, meaning a portion of the U.S. national debt is technically owed to the two-time NBA Most Valuable Player.
“To the extent that the national debt is held domestically, it constitutes domestic private sector wealth. The extent to which it constitutes net wealth can be debated, but there’s not much doubt that at least some of it is viewed in this manner. The implication of this is that increasing the national debt makes individuals feel wealthier,” the St. Louis Fed wrote of the national debt in 2020.
“[W]e might want to look at the national debt from a different perspective. In particular, it seems more accurate to view the national debt less as form of debt and more as a form of money in circulation,” the St Louis Fed continued. “Investors value the securities making up the national debt in the same way individuals value money — as a medium of exchange and a safe store of wealth. The idea of having to pay back money already in circulation makes little sense, in this context.”
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Click here to read NBC’s report in its entirety.
