This is not your father’s debt limit crisis. Or your grandfather’s.
Arguments over raising the debt ceiling have been a fixture of American politics for decades. These debates, moreover, have shared important similarities, including a performative function. But the crises have gotten more serious over time, as threats to plunge the nation into financial chaos have gotten more credible.
In politics, credibility often hinges on personalities rather than tactics or legislative maneuvering. That seems to be true of debt limit debates, where the most profound change over time has been the willingness of key players to contemplate — rather than simply threaten — a true national default.
The best measure of that willingness may be debt prioritization legislation. Over the past decade, Republican lawmakers have approved several measures that specify how Treasury should cope with an actual debt limit breach. (In 2013 the Congressional Research Service provided an overview of this legislation, as well as a short history of the debt limit; see CRS, “The Debt Limit Since 2011” (June 5, 2017).) Democrats describe debt prioritization as impractical and disingenuous. Worse, they say, contingency plans are actually dangerous because they “normalize” the possibility of default.
“They are composing an imaginary world in which the debt limit has been breached and there is not catastrophe,” asserted Senate Budget Committee Chair Sheldon Whitehouse, D-R.I., when asked about a recent GOP debt prioritization bill. “This bill normalizes that. I think it’s a very dangerous thing.”
Debt prioritization may be a dangerous idea, but it is not exactly a new one. That sort of “normalization” featured in the nation’s first serious debate over raising the debt ceiling, which unfolded almost exactly 70 years ago. In the summer of 1953, Harry F. Byrd, Virginia’s conservative Democratic senator, declined to support a debt limit hike requested by his sometime ally, President Eisenhower. And after convincing a majority of his colleagues on the Senate Finance Committee to join him, Byrd laid out plans for coping with a debt ceiling breach.
Byrd’s normalization of a debt limit breach, however, was different from today’s. His resistance to raising the debt ceiling was an exercise in foot-dragging, not outright refusal; he believed that Eisenhower could scrape by for a bit longer before seeking additional borrowing authority. And he thought the effort would be healthy for both the president and the nation.
More to the point, Byrd never seriously contemplated the prospect of actual default, and no one believed that he ever would. Even in the midst of his midsummer standoff, everyone understood that Byrd’s battle was symbolic and performative, not a serious threat to the nation’s economic well-being.
His was not a credible threat.
Debt Limit Origins
The modern debt limit can trace its origins to World War I, when Congress first began to loosen its tight grip on federal borrowing. Up to that point, lawmakers had kept Treasury on a tight leash. As Kenneth D. Garbade explained for the New York Fed’s Liberty Street Economics blog, “bonds were authorized to finance specific projects, and the Secretary of the Treasury had little or no discretionary authority to choose the terms of a new issue.” Garbade offered some useful examples:
The War Revenue Act of 1898 authorized the sale of up to $400 million of bonds for the sole purpose of funding the Spanish-American War. The act provided that the bonds should pay interest at a rate of 3 percent per annum, mature in twenty years, and be “offered at par [in a fixed-price subscription offering] as a popular loan.” Similarly, the Spooner Act of 1902 authorized the sale of 2 percent thirty-year bonds to fund some of the costs of building the Panama Canal.
That level of granularity in debt management proved impractical during World War I. As a result, Congress agreed to grant Treasury some flexibility, including authority to issue bonds for national defense and other expenditures. Lawmakers also granted the department new authority to establish the terms of new issues.
In succeeding years, Congress relinquished still more control over federal borrowing, culminating in a 1939 law that established a consolidated federal borrowing limit much like the current debt ceiling. This measure — which applied to most, if not quite all, forms of federal borrowing — established a cap of $45 billion on total debt. Over the next six years, Congress pushed this limit steadily higher. Indeed, by 1945 it had reached $300 billion, thanks to the sustained fiscal pressures of World War II.
In 1946, however, Congress did something striking: It lowered the debt ceiling. The Public Debt Act of 1946 reduced the nation’s borrowing limit to $275 billion, and federal debt remained under that cap for the next seven years.
An Unhappy Summer
In July 1953 George Humphrey, Eisenhower’s notoriously frugal Treasury secretary, found himself contemplating some unhappy figures. (Prior analysis: Tax Notes Federal, Feb. 14, 2022, p. 941.) The Korean War and its associated defense spending had spurred a rapid increase in federal debt. By mid-July the total had reached $272 billion, leaving precious little headroom under the $275 billion cap (“U.S. Likely to Request Higher Debt Limit,” The New York Times, July 18, 1953, at 17). Worse, Treasury needed to borrow more money in the next few months, something between $10 billion and $12 billion before the end of the calendar year. An increase in the statutory debt limit seemed like an obvious necessity.
But there wasn’t much time. Congress was scheduled to adjourn at the end of the month, and lawmakers had no plans to return until January. That left Eisenhower with only a couple of weeks to make his request.
The 1953 debate over the debt limit increase — like many later fights over the ceiling — would unfold under intense time pressure.
Meanwhile, key members of Congress were clearly unhappy at the prospect of voting for a higher debt limit. Several had been signaling their opposition for weeks, as Humphrey and his lieutenants had been dropping hints about their needs. Still, Treasury officials were confident they could win approval. “Congressional opposition to any change in the debt limit at this time, they said, would probably be considerable,” The New York Times reported after speaking with Treasury leaders (“Deficit of $9,389,000,000 Sets U.S. Peacetime Mark,” July 2, 1953, at 1). “But eventually,” according to the Times, “the Senate and the House would give way in the face of the realities of the situation.”
Those optimistic Treasury officials would be proved right. But not before discovering that “eventually” meant something different in the Capitol than it did in the Treasury.
Byrd’s Resistance
Enter the pivotal figure of Byrd. Over the course of his long career in state and national politics, Byrd had been many things: newspaper publisher, governor, senator, and leader of the eponymous Byrd Organization, a Democratic political machine that dominated Virginia politics for more than 50 years.
Today, Byrd is remembered for the way he used his power and influence to defend racial segregation. He was a bitter opponent of integration in every sphere of life, but especially in schools. He led southern opposition to the Supreme Court’s decision in Brown v. Board of Education, and he was the architect of Virginia’s “massive resistance” to integration, which included a set of state laws that closed any public school attempting to integrate.
Byrd’s entire career was built on the structural and legal foundations of white supremacy, but race was not his only concern as a politician. Initially, he rose to national prominence as a fiscal conservative — and especially as a vocal critic of President Roosevelt’s New Deal. He was a leader in the 1937 intraparty rebellion by southern Democrats that helped bring a premature end to Roosevelt’s domestic policy ambitions.
Byrd’s break with the Democratic establishment continued after Roosevelt’s death. In 1948 he declined to endorse President Truman for reelection. In 1952 he similarly refused to support Adlai Stevenson in his race against Eisenhower. Once Eisenhower was elected, Byrd cooperated with the White House on a range of issues, but especially on fiscal policy. Byrd was devoted to “pay as you go” financing, deeply troubled by unbalanced budgets, and nearly despondent about the size of the national debt.
Soon after Humphrey floated the prospect of a debt limit increase in April 1953, Byrd signaled his opposition, promising to resist the hike. Later, he also warned his Senate colleagues that continued high spending would necessarily require Congress to raise taxes — unless they chose to court disaster by piling on more debt. “Unless Congress increases taxes, the government is going to be faced with another $10 billion deficit and it will be almost impossible to balance the budget in the next year,” Byrd said (“Increase in Taxes Predicted by Byrd,” The New York Times, July 19, 1953, at 37).
On July 30, 1953, just one day before Congress was scheduled to adjourn for the rest of the year, Eisenhower asked lawmakers for a $15 billion increase in the debt limit. The last-minute request found immediate support in the House, which approved the increase to $290 billion almost immediately.
But the Senate Finance Committee declined to act on Eisenhower’s request. Byrd had found many willing allies in his bid to block the increase, including key members of his own party, like Minority Leader Lyndon B. Johnson of Texas and Finance Committee ranking minority member Walter F. George of Georgia. But many Republicans signed on, too, and when the Finance Committee eventually voted, the result wasn’t close: The panel shelved the request by a vote of 11 to 4.
Byrd’s Reasoning
Before the vote, Byrd had rallied the opposition by laying out his rationale for rejecting Eisenhower’s request. In a public statement, he announced his intention to “most earnestly oppose” any request to raise the ceiling, at least for the time being (“Text of Byrd’s Statement Opposing Debt Limit Rise,” The New York Times, July 30, 1953, at 14). If such a request was necessary — which was debatable, in Byrd’s view — it could certainly wait.
The Treasury Department, Byrd explained, had roughly $9 billion on hand. The government’s anticipated deficit for the next five months was $7.3 billion. That left Treasury plenty of headroom for the rest of the year, especially since the department still had $3 billion of borrowing authority under the existing debt limit. If Treasury still believed it needed additional borrowing authority, it could make that request when Congress returned in early 1954. In the meantime, the government could scrape by.
Having summarized the math, Byrd shifted to moral arguments against a debt limit hike. “I would regard it as a great mistake to increase the debt limit at this time,” he wrote. “A debt of $275 billion is as much or more than this country should be called upon to stand.”
Even at its present level, the debt posed a serious threat to the nation’s future, Byrd continued. “I regard a $275 billion debt as a menace that not only will harass those of us of this generation but many generations of Americans to follow us,” he wrote. “I submit further that an increase in the debt limit at this time would be an invitation to extravagance.”
These moral arguments overlapped with Byrd’s conviction that an argument over the debt limit would be salubrious in its own right. Arthur Krock, an economics columnist for The New York Times, summarized this element of Byrd’s thinking. Rejecting an increase in the debt limit, Krock wrote, “has the psychological value of dramatizing the critical fiscal position of the Government and awakening public consciousness of the gravity of the situation” (“The Retreat on Raising the Public Debt Limit,” The New York Times, July 23, 1953, at 22).
Byrd made the same point in the immediate aftermath of the Senate vote. “My main objective was to emphasize the fiscal crisis that now faces us with deficits over most of the past 15 years and more deficits to come unless we cut down expenditures,” he told reporters.
Debt Prioritization
Aware that budget forecasts were notoriously uncertain, Byrd’s written statement of opposition to the debt limit increase had featured plans for coping with a fiscal shortfall in late 1953. The government should have enough money to get by, Byrd insisted. But if things got tight, Eisenhower could create additional headroom by curtailing federal expenditures.
“The president has the authority, if he chooses to use it, to place every agency of the Government on an expenditure ration and limit the expenditures in such manner as he deems best,” Byrd wrote. Indeed, Eisenhower could even ration expenditures to bring the nation back from the brink of default. “Should the debt limit be reached, the president could exercise this power, reduce expenditures, and operate within the present debt limit,” Byrd contended.
This was debt prioritization, at least informally. And when Byrd succeeded in rebuffing Eisenhower’s requested increase, the president actually followed the senator’s advice, instructing agency heads to curtail expenditures immediately. “It is absolutely essential that you begin immediately to take every possible step progressively to reduce the expenditures of your department during the fiscal year 1954,” Eisenhower wrote to agency heads. News reports suggested that federal officials had also begun delaying their payments to contractors.
Such measures helped Eisenhower stay under the limit. But they were not, by themselves, sufficient to stave off default. Treasury was eventually forced to engage in some complex financial maneuvers to keep the money flowing — actions that today might be described as “extraordinary measures,” despite their rather ordinary reappearance at predictable intervals.
Specifically, Treasury was forced to sell half of its $1 billion store of “free gold” — extra bullion in government vaults not pledged as backing for paper currency. Humphrey used proceeds from the gold sale to retire $500 million in federal debt held by the Federal Reserve, thereby creating additional room under the borrowing cap.
By December, however, talk of a debt limit increase returned. And many observers, especially on the nation’s editorial pages, endorsed the idea. “Some members [of Congress] feel it is necessary to keep the administration in fiscal trouble, with the danger of bumping its head, in order to induce extraordinary efforts at economy,” The Los Angeles Times wrote. “But there is some danger of getting the country into serious difficulties by pursuing such a course.”
But conservative papers felt vindicated by Treasury’s ability to muddle through, just as Byrd had predicted. “The lesson is clear. The way to get government expenditures down is to cut taxes and deny the administration authority to increase the debt,” crowed The Chicago Daily Tribune. “At an early date Congress might well consider cutting the debt limit.”
The muddling through continued through the summer of 1954, when Humphrey finally managed to wheedle a $6 billion increase in the debt limit from a reluctant Congress. But the increase was explicitly temporary, all but guaranteeing another showdown with Byrd and his allies in the near future.
Not a Crisis
The 1953-1954 struggle over a debt limit increase is notable for its similarities with today’s standoff over the borrowing cap. Then, as now, key lawmakers refused to vote for a “clean” increase of the debt limit. Instead, they demanded certain concessions. In Byrd’s case, he wanted to see Eisenhower sweat a bit, struggling to remain under the ceiling by curbing expenditures. His hope was that such an effort would help school not just Eisenhower but the nation at large in the possibilities of true austerity.
Even more important, the 1953 debate featured a discussion of contingency plans. While these plans made room for the prospect of breaching the debt ceiling, they generally focused on ways to avoid that possibility by slowing expenditures dramatically. By contrast, current champions of debt prioritization seem to be contemplating actual default — or at least a failure to meet the totality of government obligations, including both debt payments and spending needs.
And that’s the key difference between these episodes. Byrd never seriously contemplated the possibility that the federal government would stop paying its bills. He just gambled that Eisenhower could shrink those bills proactively before the debt limit became a critical problem. And with a little help from Fort Knox, Byrd was proved right.
Observers understood that Byrd would never countenance actual default. They understood that he was simply betting on the (rather good) chance that additional headroom could be found.
Today’s situation is fundamentally different. The threats in 2023 are more serious than they were 70 years ago because today’s opponents of a debt limit increase are not traditional fiscal conservatives in the mold of Harry Byrd. These opponents pose a credible threat in a way that Byrd never did.