U.S. Must Learn How To Make Debt-Limit A Non-Issue From Denmark

The United States isn’t the only country that puts a limit on how much money its government is allowed to borrow. But it is the only nation regularly pushed to the brink of a political and economic crisis as a result, Julia Horowitz reported for CNN.

Photo Insert: The only other advanced economy that limits borrowing in absolute terms is Denmark, but its ceiling is intentionally set high enough to avoid political dramas like the one playing out in Washington.

The only other advanced economy that limits borrowing in absolute terms is Denmark. But in the Scandinavian country, the ceiling is intentionally set high enough to avoid political dramas like the one playing out in Washington.

“It’s really rare for debt limits to pose genuine threats to economic stability in a country,” Mrugank Bhusari, an assistant director at the Atlantic Council, a think tank, said. Congress first imposed a limit of $45 billion on overall US government borrowing in 1939. That was about 10% above the total federal debt at the time.

Since then, the country’s economy has expanded substantially — as has its borrowing. US federal debt increased to $30.9 trillion in 2022 (from $870 billion in 1939, in current dollars).

The ratio of general government debt to gross domestic product, or GDP, stood at about 128% in 2021, according to the International Monetary Fund (IMF.) That’s meant Congress has had to frequently step in.

Since 1960, legislators have acted 78 times — on average more than once a year — to raise or modify the US debt limit. It’s a problem unique to the US.

Countries that have opted for debt limits tend to structure them as a percentage of GDP instead of choosing a nominal value, according to Bhusari. They also allow for more flexibility, taking defaults off the table in the case of a breach.

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