07/22/2011 01:42 pm ET Updated Sep 21, 2011

U.S. Debt Ceiling a Great Idea

If Greece or Portugal had embedded in their constitutions America's debt ceiling requirement, they would not be basket cases today.

The current U.S. debt debate south of the border is not a failure of democracy nor is it an example of the ineptness of the American system of government. It is American-style checks and balances and imposes a discipline on Congress and the president that no other countries has.

The ceiling has been a constitutional requirement from the beginning, which gave Congress the sole power to borrow money against the credit of the United States and approve each and every loan. After the First World War, a total, or ceiling, was set, which can only be exceeded if Congress and the president approve. The last approval to increase the amount -- to $14.294 trillion -- was signed into law by all parties as recently as February 2010.

So a deal, most probably short-term, will be struck so that people can get their entitlements and investors their payouts. And the United States will fix its fiscal house because, constitutionally, it has to. So in a twisted way, this system is a competitive advantage compared with Europe's Eurozone welfare states, and many other countries including Japan and China, whose debt-to-GDP ratios are far worse than America's.

Put another way, the United States without this debt ceiling requirement would be in worse shape than it now is, which is roughly 90% of GDP or the same as Canada's, if the state and provincial governments are included in the totals. The Americans just talk about it more because their system of checks and balances requires that a conversation, debate and, inevitably, a shouting match breaks out. This is noisy but helpful.

By contrast, Canada did not have a debt ceiling, so for years Tories and Liberals overspent and borrowed from foreigners to do so. But in February 1995, the country nearly lost its triple A credit rating. The Finance Department issued a terse statement: "The sheer magnitude of Canada's foreign debt in relation to the size of the economy means that Canada has become excessively vulnerable to the volatile sentiments of global financial markets. We have suffered a tangible loss of economic sovereignty."

Finance Minister Paul Martin put it more bluntly and said "we are in hock up to our eyeballs" then changed course abruptly. Spending was slashed and the ship was righted because of economic growth. Taxes, already much higher than the U.S. in 1995, were not increased but held with some cuts to corporate taxes.

This is the formula for success, but it's not quick, nor is it rocket science. The U.S. will make some kind of a deal and remain within its debt ceiing discipline. The same will happen for the United States as happened in Canada if it merely cuts spending to live reasonably within its means which will encourage economic growth and lower unemployment in the long run.

But taxes for the wealthiest people must increase too because they are already too low.