The recent increase in the debt limit, marking the third such increase in President Bush's tenure, is reigniting the debate among economists as to whether there should even be a limit on the amount the Treasury can borrow. In fact, some economists say the debt ceiling should be done away with altogether.
"Getting rid of the debt ceiling is the best thing that could happen for everyone because it is not effective as a means of restricting spending," said Drew Matus, senior economist at Lehman Brothers. Bumping against the debt ceiling also causes uncertainty in the bond market by delaying federal debt auctions and auction announcements. This was the case with the recent sale of two-year notes.
Economists regard the recurring debate over the debt ceiling as political wrangling rather than a real discussion of fiscal policy. "When the debt ceiling needs to be increased, it gives the party out of power the chance to accuse the party in power of financial mismanagement," said Patrick Fearon, economist at A.G. Edwards. However, raising the debt ceiling does not play well with the public. "It's hard to explain why you'd like to get rid of the debt ceiling if you're fiscally responsible," Matus noted.