The United States Does Not Need a Debt Ceiling

NEW YORK (TheStreet) -- The debt ceiling in the United States stands at $16.7 trillion and Treasury Secretary Jack Lew has told the world that the government will run out money to pay its bills on Oct. 17.

This debt ceiling fiasco began during World War I when Congress decided to put a limit on expenses in 1917. This concern was unfounded and since 1960 Congress raised this limit 78 times without a single default on U.S. debt and without missing a Social Security payment or suspending Medicare. In my opinion this makes the debt ceiling a formality, one that should be abolished.

As the U.S. economy and population grows so does our national debt. As long as U.S. debt is considered a risk-free investment around the world there should not be a limit to its size, it just keeps growing. Supply and demand will determine our debts' value. If debt is growing too fast investors will slow purchases and the interest rates paid on this debt will rise. When Congress sees the cost of our debt rising it's time to cut government spending to reduce the growth of the debt. That's economics 101.

When you consider that the United States guarantees the $6 trillion in debt and mortgages of Fannie Mae and Freddie Mac during conservatorship, the U.S. debt is at least $22.7 trillion, but Congress is not concerned with this fact. This only shows that the ceiling of our debt will continue to rise, so why have a limit?

The U.S. dollar is the medium of exchange in the global economy and Congress should not risk losing this leadership status. The largest economy in the world is the only country that should not have a debt limit, but in reality the United States is the only major country in the world with a debt limit.

Today, Congress and the White House are putting the global leadership of our country at risk. We do not want a weaker dollar. We can't afford not to have countries around the world invest in U.S. debt, debt that should always be known as a risk-free investment.

Nobody can know for sure what would happen in the global economy if the United States was to miss an interest payment or miss a payoff on a maturing note or bond. The risk would be sell orders from around the world, which could cause a collapse in the bond market. The Federal Reserve would be at risk as its $3.5 trillion balance sheet makes the central bank insolvent.

What would happen to citizens who depend upon Medicare and Social Security? Many bills that are paid with money from social security would not be paid, which could be catastrophic in the local economies on Main Street, U.S.A.

Placing the debt ceiling as a crisis issue is a huge mistake. In 2011, a delay in raising the debt ceiling caused a rating agency to downgrade the U.S. debt for the first time ever and resulted in the fiscal cliff and the sequestration spending cuts.

I am optimistic that the debt ceiling will be raised in time to avert these potential negatives, but our trading partners and investors in our debt will be less likely to add to their Treasury portfolios and may seek trade agreements in non-dollar terms. Our reputation has been hurt by this divided Congress.

This environment is a difficult one for investors, but fortunately the markets have been stable and so far the downside volatility that has occurred since mid-September has provided buying opportunities.

Take a look at the daily chart of the Dow Industrial Average. The Dow set its latest all time high at 15,709.59 on Sept. 18 then declined 6.3% to 14,719.43 into last Wednesday, holding its 200-day simple moving average 14,748.65 and my semiannual value level at 14,724. The close at 15,237.11 on Monday was above its 50-day SMA at 15,171.43, which indicates upside potential is to this month's risky level at 15,932, yet another new all-time high. Above are my semiannual and quarterly risky levels at 16,490 and 16,775. If things go wrong and the Dow closes below 14,724 the downside risk is to my annual value level at 12,696.

Chart Courtesy of MetaStock Xenith

Laws that apparently make no sense should be allowed to expire. President Clinton declared that the Glass-Steagall Act, also known as the U.S. Banking Act of 1933 was no longer appropriate in 1998 after the Federal Reserve approved Citibank's affiliation with investment banking firm Salomon Smith Barney.

President Obama is right when he says that the debt ceiling needs to be raised so that the bills Congress has already approved can be paid. But isn't it a better outcome if the president simply declares that a World War I bill setting a debt limit is no longer appropriate in the 21st Century global economy?

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier is the chief market strategist at AlphaPlus Analytics in addition to He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at

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