Up until 1917, the thing that is creating so much political turmoil right now—the U.S. debt ceiling—didn’t even exist. This New York Times video takes a look at the history of the debt ceiling and why it causing so much political infighting today.
It was not until 1917 that Congress instituted the debt ceiling, in order to make it easier for the U.S. Treasury to borrow the money needed to fund World War I. But as a tool to limit government borrowing, the debt ceiling hasn’t worked so well. Since 1917, Congress has raised the ceiling 102 times, including 10 times in the past decade alone.
The willingness of nations such as China to lend money to the United States has kept interest rates low—the U.S. currently pays about 3% interest on 10-year Treasuries, compared to the 5% Italy must pay and some 20% Greece must pay. Those low U.S. interest rates have translated into low borrowing costs throughout the U.S. economy. The danger in failing to raise the debt ceiling is that our lenders may want to raise our interest rates, which would mean higher interest rates for all of us.