Misunderstanding money is dangerous, part 2: when cruft isn't cleaned out, it comes back to haunt us.

In my last post I explained in brief why the debates over the deficit are completely misguided and introduced some of the basic ideas behind MMT. In this post, I'll deal with the debt ceiling specifically.

The now-infamous debt ceiling dates back to the United States' controversial entry into the first world war in 1917. This was in the days of the gold standard when the government was actually revenue constrained, so to finance the war the government needed to issue bonds (the famous Liberty Bonds). Since the war itself was controversial, and spending always so, a compromise was reached that included a debt ceiling which congress would have to vote on in order to raise. It was a token gesture that never appears to have done anything to rein in spending because it was raised again and again over the years without incident and nobody cared. This compromise was silly and purely a political face-saving move but at least had some plausible root in reality given how the monetary system of the day worked. Decades passed and the gold standard (and all the limitations associated with it) became history, rendering the debt ceiling utterly pointless. Raising it became just a legislative chore without purpose, whether or not each successive session of congress understood that. But all the while, it's been a wrench that someone either unscrupulous or well-intentioned-yet-moronic could easily toss into the gears, which is exactly what just happened.

I find it incredible that more people aren't asking questions about the debt ceiling "crisis". The debt ceiling has been raised more than once per year for decades.
74 times since 1962
10 times since 2001
http://money.cnn.com/2011/01/03/news/economy/debt_ceiling_faqs/index.htm

What makes right now, this instant, so important? No congressperson has tried to answer that as far as I can tell, it's like they're banking on the assumption that most of the public has never heard of this thing before and will just take their word for it that it's an emergency. It's just a pretense to cut social programs and now was the time they could get away with it.

Equally stunning is how little outrage there is that a couple of years ago there was a ten trillion dollar bailout of the financial sector, and now we're suddenly supposedly out of money to pay for services poor, old and sick people use. I'd say that this class warfare couldn't get any more blatant and open, but I fully expect to be proved wrong.

Interestingly, the top suggested search for "how many times" is "how many times has the debt ceiling been raised", so apparently a lot of people have been searching for this information recently. Unfortunately, a critical mass of people probably won't realize how fishy this was and demand answers before the next manufactured crisis
diverts attention away from this one.

The general theme here, and one that you'll recognize over and over during this series, is of relics from previous iterations of our monetary system that have lost relevance but nobody understands well enough to remove.