While pundits speculate what actions President Obama and the Treasury Department might take to avoid the next standoff with Congress over raising the debt limit, it’s worth taking a moment to briefly examine history.
Debates over the nation’s debt have been a reoccurring fact of American political life since the country’s inception. That Congress is seeking to assert control over the nation’s debt is nothing new. In fact, in the 19th century, Congress was far more in control of the nation’s debt than it is today by authorizing borrowing for specified purposes or specifying which types of financial instruments the Treasury could employ, as well as other details of debt terms such as interests rates.
While Congress has always asserted some form of control over the nation’s debt as a means to assert its Constitutional powers with regards to taxing, spending and initiation of war, over the last century it has increasingly delegated independence of action to the Treasury Department. One of the most significant turning points in the relationship was the 1917 Second Liberty Bond Act, in which Congress granted the Treasury Department the authority to issue debt needed to fund government operations as long as the total debt did not exceed a stated ceiling. The Second Liberty Bond Act of 1917 helped finance the U.S. entry into World War I and gave the Treasury greater ability to respond to changing conditions and more flexibility in financial management while still retaining some Congressional control. In 1939, at the request of President Franklin Roosevelt and then-Treasury Secretary Henry Morgenthau, Congress enacted legislation that created the first aggregate limit covering nearly all public debt. On the eve of the U.S. entry into World War II, H.R. 5748, further delegated independence of action on the debt to the Treasury.