The U.S. debt limit is again stoking fears across the globe. Why not just scrap the thing?

WiththeU.S. government stoking global economic fears as it faces yet anotherstandoff over raising the debt ceiling, some economic analysts and lawmakers are proposing arelatively simple solution to permanently resolve this issue:

Just scrap the thing.

"I don't think there's any reason to have it exist anymore," said Douglas Holtz-Eakin, former director of theCongressional Budget Office, whois the current president of the right-wing think-tank American Action Forum.

The biggest problem with the ceiling, saidHoltz-Eakin and other observers, is that it has become so politicized, and adangerous political bargaining chip that holds the economy hostage in orderto extractpolitical demands.

"Congress is increasingly willing to run with scissors on this," saidLaura Blessing, a senior fellow at Georgetown University's Government Affairs Institute. "Thebest-case scenario, abolish the thing."

A handful of Democratic lawmakers are trying to do that, andhave co-sponsored the reintroduction oflegislation calling for a repealof the national debt ceiling.

"We should get rid of the debt ceiling. There's no other function than to let hostage-takers ply their trade,"MassachusettsSen. Elizabeth Warren told CBC News Tuesday.

Rhode Island Senator Sheldon Whitehouse, chair of the senate budget committee, said in a statementTuesday that the threat of default "puts a very fine point on the need to get rid of this arbitrary mechanism that offers no benefits yet carries with it the power to deliver serious damage."

U.S. mostly an outlier

Currently, U.S. President Joe Biden supports increasing the government's $31.4 trillion legal borrowing limit. But Republican House Speaker Kevin McCarthy and other GOP lawmakers want a deal that guarantees trillions of dollars in spending cuts before they sign on to raising the debt limit.

On Tuesday, congressional leaders from both parties met withBiden to address the issue, but little progress was made.

The debt ceiling is the government's borrowing limit that can only be raised through congressionalauthorization. That money, according to the U.S. Treasury Department, is needed for the government to meet its existing legal obligations, including social security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.

WATCH | Biden wants to lift the debt ceiling:

Biden calls for lifting of the debt ceiling

2 years ago

Duration 4:15

U.S. President Joe Biden used the state of the union to call on the U.S. Congress to lift the debt ceiling, calling out the Republicans for wanting to 'take the economy hostage,' eliciting jeers and heckling in return.

The U.S is mostly anoutlier when it comes to settingsuch debt ceilings. Denmark also sets a debt ceiling, but as noted byMrugank Bhusari,an assistant director with the AtlanticCouncil'sGeoEconomics Center, the Danish government sets the ceiling so highthat it will not be crossed, "rendering it no more than a formality."

A few other countries, including the European Union, havetheir debt ceilingset as a percentage of GDP (60 per cent in the case of the EU). But Bhusari notes that, unlike these other countries, the U.S. is "unique in its inability to find workarounds."

On Jan. 19, the U.S. federal government actually reached itslimit on the amount of money it was authorized to borrow: $31.4 trillion. That prompted the U.S Treasury Department to use what they describedas"extraordinary measures"to stave off a default those measuresincludedemergency changes to certain government accounts.

But in a recent letter toMcCarthy, Treasury Secretary JanetYellen said that those measures could end as early as June 1, meaning the U.S., at that time, would be in default ofits obligations.

Many economists haveforecast dire economic consequences as a result of a default, which could include a credit rating downgrade, impact on borrowing, negative impact on the dollar, and potential havoc inthe financial markets,with job losses in the thousands, if not millions and all leading to a recession.

'Does exactly the opposite'

Holtz-Eakin said that up until around the First World War,Congress would voteon every debt issue, which wasunwieldywhen trying to finance a war.

They enacted a debt limit so the Treasury Departmentcould borrowwhen it needed, justunderneath thelimit. And when that limit needed to be raised, the departmentcould consult with Congress, he said.

"Ironically, it was meant to make life easier forTreasury. And now it does exactly the opposite."

For decades, the vote to raise the debt limit has generally gone through withoutincident. But in 2011that changed, as the House, under Republican control and influenced by the Tea Party, ran on a pledge to vote on every dollar spent, Holtz-Eakin said.

"The Republicans said, 'We're going to vote on every dime,' which meant they now hadthe votes for debt limit increase. Almost none of them wanted to do it," Holtz-Eakin said."Then that partisanshipslowly began to infect the Senate as well. And now we're at a position where it's become this real political hot potato."

Those who support keeping the debt limit will say that it forces Congress to "periodically look at itself in the mirror and say 'we're spending too much, let's get our act together,'" Hotlz-Eakin said.

"But I just don't believe that evidence suggests that's true."

'We should not be puttingthe U.S. economy hostage'

Historically, the debt ceiling has not been a tool for fiscal restraint, said Blessing. It may have had some impact around the margins, but certainly nothing significant, she said.

"If you want to talk about meaningful fiscal restraint of a transformative nature, I cannot imagine a push, a statutory and/or procedural tool that is more ill-suited for that kind of a far-reaching and expertise-requiring exercise as the debt ceiling."

Instead, saidLouise Sheiner,policy director for the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, the debt ceiling is used as a political threat.

"We should not be puttingthe U.S. economy hostage and we should not be putting the credibility of the U.S. government hostage like this," she said. "Not a good way of getting political leverage."

Althougha handful of Democratic legislators may be pushing to scrap the ceiling, Blessing said she's not optimistic it would pass through. Biden himself, just last year, said the idea of scrapping the debt limit would be "irresponsible."

"It hasn't captured enough of a priority among political actorsof both parties in the U.S," Blessing said. "[And]realistically, we see a number of politicians who think of themselves as fiscal hawks."

What are the alternatives?

While abolishing the debt ceiling may not be in the cards, there have been other alternatives suggested to work around it.

In 2011, during a debt limit standoff, then-senate minority leader Mitch McConnell came up with a plan that would allow then-president Barack Obama to raise the debt limit. This would put the burden on the president, and allow it to pass through, as long as two-thirds of Congress didn't pass a resolution rejecting the president's request.

White House officials have also reportedly been looking ata clause in the 14th Amendmentthat potentially would allow the president to raise the limit, arguingit would be unconstitutional for the U.S. to not make good on its payment obligations.

Finally, there's the trillion-dollar coin. The idea here is that the U.S. Mint could create$1-trillion coins, deposit them atthe FederalReserve, and the governmentcould pay its debt obligations with those funds.

But many expert have problems with these other avenues to curtail the debt ceiling problem.

"I think they're gimmicky,"saidHoltz-Eakin "But I think they also runinto the following substantive problem, and that isthey will be perceived as Hail Mary passes of desperation by financial market participants, rating agencies, and they will impair the future credit of the United States."