Most of us age 50 or older grew up in homes that had standard 8-foot ceilings. As people begin to build larger and larger homes, higher ceilings became a status symbol. Most higher-end homes now boast ceilings that are at least 9 feet if not 10 feet tall or higher.
High ceilings let more light into a house, and they create a sense of spaciousness and airiness. Behavioral research also suggests that high ceilings provide a psychological sense of freedom and trigger our tendencies towards special exploration.
We also know from history that high ceilings in churches, palaces, and even banking institutions equated to a sense of wealth and opulence. When I began work as a teller for Huntington Bank during my college years, one of the first things that bank executives were quick to point out was that the Huntington office on the corner of East 9th and Euclid Avenue in Cleveland had the highest ceilings of any bank lobby in the United States. That meant they were really successful at what they did, or that was the implication.
There has been a lot of talk since the beginning of the year about the United States debt ceiling. We crossed over our $31.4 trillion debt ceiling in January of this year. The US Treasury has been using extraordinary measures to manage the cashflow needs of the US government while we waited on a new debt ceiling threshold to be agreed upon by those in power on Capitol Hill.
This begs the question why don’t we hear about these types of debt ceiling crises in other countries? It turns out that very few countries around the world have debt ceilings. Australia did away with its debt ceiling in 2013, just six years after it was created. During this time, they had four increases to their debt ceiling and decided this was not a very effective way to manage their debt.
As a matter of fact, from our first chart below, you can see that there are only six other countries that impose any type of government-mandated debt ceiling. I wonder if you will feel better knowing that we are currently keeping company with just Denmark, Poland, Kenya, Malaysia, Namibia, and Pakistan.
Source: Charles Schwab, created with mapchart.net as of 5/12/2023
Of the countries in red, only Denmark has a flat currency debt limit. However, it is substantially higher than the country’s current level of debt. It is so high that their current debt level is only 14% of the ceiling. All the other countries express their debt ceiling as a percentage of GDP. There is also a wide range of adherence to these rules, and somewhat vague consequences if they don’t abide by them.
As you can see from our second chart, the United States has increased its debt ceiling 22 times since the turn of the century, just 22 years ago. You will also note that each of the stair-step increases in the debt ceiling was quickly met by the government spending enough money to fill in the gap and create a new debt level issue.
Source: Charles Schwab, Macrobond, data as of 5/18/2023
One thing that we have watched consistently over the past 40 years, regardless of who was in power, is that politicians in Washington DC can always find reasons to spend money that they didn’t create. We all know that we could not run our homes or our businesses in this manner for any extended period.
As I write this over the Memorial Day weekend, it appears that a tentative deal has been struck between President Biden and House Speaker Kevin McCarthy. This will abolish the debt ceiling until early 2025, shortly after the next Presidential and Congressional elections. There are also some limited spending cuts tied to the pending legislation.
Government debt levels were already at record highs before the onset of the COVID-19 pandemic. The crisis caused both fiscal and monetary policy spigots to be turned on full blast, creating new waves of debt. We know that large amounts of debt tend to be followed by weaker economic growth due to a misallocation of capital and money being used to pay both the debt and the interest on it.
Most people like a house with spacious, airy, and open high ceilings. However, most will all agree that higher government debt ceilings will eventually be a problem for someone. If not for us, it will be for our children or our grandchildren. They will ultimately pay the price in higher taxes and/or lower growth. We thought that it was important to put our self-imposed debt ceiling issues in perspective for you, our trusted friends and clients, as we continue “Moving Life Forward”.
© 2023 Jesse Hurst
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