Economist Zandi: Kill the debt limit

The nation's debt limit is an outdated artifact that can wreak havoc on the economy and should be scrapped, according to one of the nation's leading economists.

Mark Zandi of Moody's Analytics told members Thursday that the debt limit has outlived any usefulness it might once have had, and other budgetary rules could easily replace it while removing the persistent threat thelimit poses to the U.S. economy.

"We need to get rid of the debt ceiling law," he told the Joint Economic Committee. "It's anachronistic and it's a problem."

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In his proposal to address the "fiscal cliff," President Obama is pushing to largely erase Congress's control over the debt limit. His suggestion would grant the White House power to raise that ceiling as needed, with Congress only being able to pass resolutions disapproving of the measure, which could then be vetoed. Following last summer's last-minute debt-limit fight, which upset markets and led to a credit downgrade, the change would allow Congress to still take symbolic votes on the debt, without actually risking a default on the nation's obligations.

Under recent analysis, the government is expected to reach its currently $16.4 trillion borrowing capacity by the end of 2012, and would likely have to raise it sometime in February. The White House has said addressing the debt limit is essential to reaching a deal on the "fiscal cliff."

Zandi did not explicitly endorse Obama's proposal, but said it was high time to put some other budgetary rule in place that does not pose the same threat.

"We need some form of budget rule to make sure that there's some discipline going forward," he said.

Kevin Hassett, director of economic policy studies at the American Enterprise Institute, agreed that the last debt-limit fight did take its toll on the economy, but advanced a theory that in the long run, it could yield some benefits by advancing fiscal restraint stemming from the standoff.

"If that's what it takes ... to get spending under control, then we have to concede that in the long run there's a benefit," he said.

Hassett added that he in no way would support the U.S. defaulting on its debts, and Zandi contended that the regular re-occurrence of the debt limit as an issue is posing its own challenges.

"I think it's a mistake to put a revolver to your head on a regular basis," he said.

If nothing else, Zandi said the debt limit needs to be increased by a sufficient amount that would last the government at least until after the 2014 elections.