Whether or not the United States can constitutionally default on its debts is an unresolved question. The 14th Amendment says: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."
To default on existing debt is like deciding to somehow "unbuy" things that you have already purchased on credit and are currently using.
The reason that other countries don't have debt ceilings is that they assume that they must pay their sovereign debt, and therefore, when a budget is passed, they must either obtain enough tax revenue to pay the obligations thus incurred, or borrow to make up the difference.
Right now, the US debt is nearing the size of its gross national product, but that isn't exceptionally high compared to the world's other great economies. Japan's debt is 225% of its GDP, and there is not the slightest chance of that country going bankrupt. China's officially stated debt is only 19% of its GDP, but this is not a real figure, due to the way the Chinese choose to calculate their national debt. Canada's is 82%, Germany's is 75%, Britain's is 76%.
It is interesting to contemplate why our debt has grown so dramatically. This growth, which is greater than any time since World War II, started in the 1980s. What is it? Where has it come from? How did it become so large?
Throughout the 1980s, the Reagan Administration increased defense spending against a background of permanent tax cuts. The difference was made up by increased debt. By 1989, the debt had increased to $1.9 trillion.
The first debt ceiling battle took place in 1990, when congress refused George HW Bush's spending plan. Nevertheless, by 1994, the debt had reached $4 trillion dollars. The reason was that the tax reductions of the 1980s had not resulted in increased economic activity, but a recession had set in instead. Tax revenues had not met expectations.
By 1996, the debt was $5.5 trillion dollars. The government was caught in a trap: if taxes were increased, economic activity might decline. But the tax reductions had not caused it to improve in such a way that taxe revenues were meeting obligations. As had George HW Bush, Bill Clinton had a battle with congress over the debt ceiling.
Under George W. Bush, the debt ceiling was raised 7 times. By the end of the Bush Administration, the combination of tax cuts, war spending and increases to entitlements, primarily Medicare, and the failure of the 'trickle down' theory that cutting only the taxes of the rich would lead to more economic activity, had caused the national debt to rise to $10.4 trillion dollars.
Presently, the US national debt is $14.5 trillion. It has increased approximately $4.0 trillion dollars during the Obama administration. While defense spending has dropped, the continuation of the bailout process begun under the Bush administration and additional spending programs such as extending unemployment benefits have combined to increase it.
As has been true from the beginning of this process since the days of President Reagan, there have been no tax increases to offset the debt, and the 'trickle down' theory has continued to fail. Instead, the gap between rich and poor in the United States has become so great that the top .01% of households now make an average of $27 million dollars a year, while the bottom 90% of households make an average of $31 thousand a year.
The profound distortions in American society that have resulted from our tax policies are similar to the distortions that occurred in French society between 1680 and 1780. By 1750, French society displayed a wealth distribution profile similar to what is present in the modern US. Drought and crop failures over the next thirty years, and the continuous taxation of the middle class to support the aristocracy, resulted in the effective destruction of the middle class in the 1780s. Finally, the crop failures led to hunger among people who had not known famine for generations.
The result was the French Revolution.
Americans are not yet hungry. But if present climate trends worsen--in other words, if the drought gripping the US midwest and southwest results in dramatic reductions in crop yields--it is possible that food shortages could develop not only in the US, but in other areas of the developed world as well, with unknown social consequences.
There is a fundamental reason that our world is struggling economically. It is that we have reached the limits of growth. Every time economic activity increases, shortages appear and prices begin to rise. We need core innovation in order to restore our economies to health. And, incidentally, that includes Asian economies. The Chinese economy, for example, has enjoyed years of artificially induced growth that will end if the US dollar falls much further. Only by keeping the value of their own currency artificially low have the Chinese sustained their enconomic miracle. Right now, China is experiencing a level of economic stagnation that has not yet been reported.
What is 'core innovation?' Let me give you one example: propulsion technology. There has been no significant innovation in this area since the invention of the jet engine. It is incredible that this would be true, and is the reason that we are struggling on planet Earth. There are too many of us here, and we have to find a way to express very significant population off the planet or we are going to get into extremely serious trouble with uncontrollable environmental decline. We cannot do it with jets and rockets.
Core innovation is something that changes life fundamentally for the better. The invention of the wheel, the harnessing of fire, the discovery of electricity and radio and digital computing--this was core innovation.
We need more, and we need it in the area of propulsion, and we need it now.