People will complain about the debt ceiling -- granted, it's kinda dumb -- but it's also the only speed bump left to unlimited money printing.
The core issue is the size of the debt. The US is constantly paying off old debt with new debt. Except this year the cost of those funds quadrupled -- which means, even more debt.
If interest rates stay high for several years, our national debt will balloon out of control. At a point we'll have no money left for anything but interest on the debt, or we'll just print so much money to pay interest on our national debt inflation will come back with a vengeance.
At some point I'd love to see a grand bargain where we 1) raise taxes a bit and 2) lower spending a bit. I'm not holding my breath...
> it's also the only speed bump left to unlimited money printing.
I have never once heard during the budget negotiation process, "we cannot increase this budget because it will put us over the debt limit."
The debt limit restricts the US from paying for things it has already purchased. It in no way stops the US from purchasing them, or budgeting for them, in the first place.
Using the debt limit as a means of controlling future budget negotiations (in other words, "adopt my budget priorities or I will tank the economy") is exactly why Fitch downgraded US debt, thereby increasing the cost of debt service and exacerbating the problem you're concerned about.
That's misleading. GOP employed their usual tactic of being completely fine with defaulting, and used split congress to force the cuts they wanted through.
>McConnell said that Republicans would not block a short-term increase of the debt limit until December, as long as Democrats met certain conditions.
It would be nice if both parties were unhappy! However it's very clear which party owns power when it comes to the debt ceiling here, and the other bearing the potential burden of causing financial ruin.
> People will complain about the debt ceiling -- granted, it's kinda dumb -- but it's also the only speed bump left to unlimited money printing.
This is wrong. This is a misunderstanding of what the debt ceiling is.
Congress has the power of the purse and can pass what ever budget they want.
They can say tomorrow that they will spend $1,000,000,000,000 a year on what every they want and the debt ceiling can't do anything about it.
The Debt ceiling is only about existing spending. Which has already been authorized. And ironically, almost always by the party no longer in power who is trying to block the debt ceiling from being raised to pay for the spending they authorized when they were in power.
It does nothing to stop congress from authorizing new spending after the fact.
Congress can chose to lower spending when they are in office. The fact that neither party has done that in over 30 years indicates that neither party cares about the national debt until the other party is in power.
Even the size of the debt would be ok as long as gdp is growing faster than the debt. It’s not, which means the deficit spending is being used on things that are not growing gdp faster than interest rates on that debt.
Like any business, government debt is fine as long as it’s used to fund expenses that have an roi greater than the debt servicing costs. Otherwise there will be a default (tho for government inflation is also an option)
Yes due to soft default (inflation). If you look at projected debt burdens, they are predicted to grow faster than gdp if inflation targets are met. If inflation targets aren’t met, like they haven’t in the past few years, then it’s effectively a default since the government is paying back less in inflation adjusted dollars than it borrowed. Plenty of other countries have tried this strategy and it doesn’t merit a high credit rating.
> government debt is fine as long as it’s used to fund expenses that have an roi greater than the debt servicing costs
Most federal spending is on things that will have no monetary return. A very large proportion is on age-related spending (healthcare and social security).
Running up debt to pay for education makes a certain amount of sense. Running up debt to pay for the lifestyles of those who will never have to service that debt seems unjust.
In theory healthcare and social security could provide positive roi. For healthcare due to a healthier workforce being more productive, and for social security by removing family burdens and freeing up prime age workers from elder care.
It is not like paying credit card bills with a credit card. The US government' debt is not like personal debt. We need to, collectively, stop talking about it that way.
It is and it isn't. You can't continue to fund the country on high levels of debt or continue to grow the economy and eventually pay off the debt by continuing to leverage the country. It's more like we aren't certain of the limits of debt/deficit for the US economy before we get back knock on effects whereas in personal finance your creditors will come calling much faster. There are other nuances of course but on a large macro scale it is similar.
> You can't continue to fund the country on high levels of debt or continue to grow the economy and eventually pay off the debt by continuing to leverage the country.
Sure you can. The UK has been doing it for four hundred years: they have in several instances been over 150% debt-to-GDP, and twice went over 200%:
Given the UK has never (AFAICT) had a surplus, that means they've simply continued to roll over debt, dating back to the South Sea Bubble (1700s), Napoleonic Wars (early 1800s), Crimean War (late 1800s), WW1 (1900s), etc:
(There current woes are of dumb decisions unrelated to fiscal issues, though the decisions are not helping the economy.)
See also Japan, who no one is freaking out about:
> As of March 2023, the Japanese public debt is estimated to be approximately 9.2 trillion US Dollars (1.30 quadrillion yen), or 263% of GDP,[1] and is the highest of any developed nation.[2][3][4][5] 43.3% of this debt is held by the Bank of Japan.[6]
Imagine mom and dad need to stash money away because they are going to retire in 20 years. So money can't be saved without being borrowed, and the USG acts as a safe borrower of last resort (because the world has lots of savings needs ATM). Now if the USG used that money productively, this wouldn't be a big deal, but if we just waste it on military ventures that are never going to payoff, we are going to have a problem when mom and dad need to actually retire.
A lot of country's debts can be attributed to people getting old and needing to save for retirement, things will get bloody when those countries go off the demographic cliff (e.g. Japan, western Europe, China eventually, and of course the USA).
> So money can't be saved without being borrowed, and the USG acts as a safe borrower of last resort (because the world has lots of savings needs ATM).
Money can be invested in assets other than savings accounts, e.g. the share market. Government borrowing pushes up interest rates attracting saving that might otherwise go into investments that generate returns.
Government spending using debt isn’t like saving for retirement, it’s borrowing for retirement and leaving the debt to your kids.
> Money can be invested in assets other than savings accounts, e.g. the share market.
Yes, that's why we have stock market bubbles and housing bubbles. Our 401Ks are heavily invested in index funds, while the rest of our savings are usually invested heavily in real estate (which is one reason why our housing prices are rising so quickly!). Now imagine leaning in on those 10 times more heavily than we do today...
> it’s borrowing for retirement and leaving the debt to your kids.
The point is that there is a massive demand for savings now, that money would have to be lent out to someone no matter what, and dollars are safe because US treasuries can soak up billions instantly with some sort of interest rate that will be paid back. You can't just say "oh, we should stop borrowing that money" unless you have a better idea of where to it can go.
Who leave it to their kids, who leave it to their kids.
Individual humans retire. Corporations and governments don't. The latter can roll over debt indefinitely. There is never any reason to pay it off.
The only limit is whether they can afford the interest, which is a function of how well they apply the spending to ensure income. It's very different from a household budget and comparisons easily mislead.
On a longer time scale, most corporations eventually go bankrupt. Most countries eventually undergo some kind of violent transition in which the new government repudiates old debts. This is a form of "retirement", but it's harder to predict those events than with individual human retirements.
You never know what happens until it does. Hopefully productivity increases along with redistribution away from just the capital that provides those increases will help, or perhaps we will get in a big war or pandemic and the problem will sort itself through excess deaths.
Maybe? I think immigration allows the USA not to be at the bottom anyways (as well as other immigrant friendly countries). But if all the other countries lean in on immigration as their way out, we won't be able to be so picky about what immigrants we take in (e.g. lesser skilled vs. more highly skilled ones). That might cause some problems.
The only real difference is that the government has the option to print its way out of debt. Which simply has different devastating economic effects than defaulting, but the effects are still there.
Congress passes the budget. If they want to reduce spending, they should pay the political price of having to attach their own names to those cuts. As it stands, it is simply used as blackmail for extracting concessions without actually decreasing spending.
Precisely. Congress is simultaneously demanding that the executive branch collect X taxes, and spend Y on programs, while also demanding the executive branch do it while somehow putting a total halt on paying outstanding debts it made because since X<<Y.
They collectively want to save their cake for later and eat it now, and somehow it's always someone else's fault that there's just one cake.
Anyway, this leaves the executive branch with nothing by bad options. Here are the ones I can think of, from least-bad to worst:
1. Ignore the debt-ceiling because it is weird self-contradictory nonsense compared to business as usual, fight it in federal court system as Congress Being Impossibly Stupid. (I prefer this one.)
2. Proactively ignore some spending laws while enforcing others of the President's choice. (Unconstitutional, President can't line-item-veto.)
3. Specifically ignore laws around Federal Reserve and its nominal independence, so that the President can arbitrarily print more money for everything. (Similarly unconstitutional as #2, will severely spook markets and leads to a slippery-slope of inflation since it's no permanent fix.)
4. Raise new taxes of its own choosing. (Explicitly unconstitutional, only Congress can do that.)
5. Cease to honor its debts. (Explicitly unconstitutional, also major financial/economic/diplomatic crisis.)
That's the point though, they never actually have to attach their names to any cuts, because they don't actually care about cuts, they just want to hold the government hostage every couple of years.
It seems like you may not understand how budgets at the federal level work in the U.S. Congress passes spending bills and the President signs (or vetos) them. This has nothing to do with the debt limit as such. Eliminating the need to vote on a debt limit will not in any way lead to a situation in which runaway spending can occur that is not already present in the current system.
The grand bargain you speak of has already occurred. It occurs when Congress passes a budget that is signed by the President.
The problem with printing it is that we'll always be able to just print more, because it's effectively a number in a database and we probably don't even need to literally print out dollar bills for it.
But we'll have piles of currency and we'll be lacking in actual things to buy with that. It acts as a regressive, stealthy tax so it's always politically favorable even if it's bad for us economically.
And it has downstream effects because of the demand for inflation-proof goods that are easy to get cash for (gold, silver, property you can rent out), which has other effects like making housing an investment and it being hard for people who actually want to live in those, etc.
Then you game the inflation metrics to make things look good and people wonder why numbers keep going up and they can't make any progress on actually improving their lives because they have no idea what they're really being taxed.
They'll keep getting away with it as long as people see numbers going up and never realizing the source of the problems.
I don’t see congress doing the responsible thing and dealing with the debt. Not to mention, there isn’t as much that can be cut from discretionary spending as you would think. Any meaningful cuts decimate everything outside of defense.
We’re not (in my option) going back to zero interest rates, so interest will make balanced budgets impossible to achieve.
Also don’t see much appetite to cut defense as we’re aligning to have China and Russia as enemies.
Rather I think we’ll resort to more of the Fed buying up the debt who can remit the interest payments back to the treasury.
I could see a scenario where they even just retire/redeem treasuries so the debt just goes away. The downside it’s inflationary but also does this erode confidence in the system where things are (even more so) centrally controlled.
Why worry about the national debt? It's largely owed to some part of the US government, or to the Fed itself. Foreign ownership is 7.3T, with Japan the largest at just over 1T.
We know how to reduce the deficit: raise taxes on the rich. It's not rocket appliances. It's just a complete non-starter given the current GOP. The people screaming the loudest about the deficit are the same people preventing any real steps to fix it.
You and I both know that if we raise more money, we will spend more money. There is no situation when the U.S. makes more money without immediately increasing spending
Wait, I don't believe that at all, for the following reasons:
1. The opposite hasn't been true. We have seen two dramatic tax cuts in recent history which absolutely did not lead to reduced spending.
2. The majority of federal spending is for healthcare or social security. Spending in these areas is somewhat hard to change, even with the political will. It's certainly damn near impossible to decrease such spending; it would immediately cause massive hardship for the most vulnerable people in our society (and probably riots riots).
3. The U.S. has run a surplus before and somehow didn't immediately bet it all on the ponies.
Perhaps our modern politics are so dysfunctional that there is no way out.
I'm curious how/why you think that? Tax rates were, quite "famously" much higher in the past. Comically so.
Even at a "personal debt" level, the main way out of debt is to make more money. Always has been. "Saving your way" out is a pipe dream that mostly doesn't happen. Especially as people have been coerced into paying so many private companies for things.
> The US is constantly paying off old debt with new debt. Except this year the cost of those funds quadrupled -- which means, even more debt.
And? Why is this a problem?
Given the UK has never (AFAICT) had a surplus, that means they've simply continue to roll over debt, dating back to the South Sea Bubble (1700s), Napoleonic Wars (early 1800s), Crimean War (late 1800s), and WW1 (1900s):
The core issue is the size of the debt. The US is constantly paying off old debt with new debt. Except this year the cost of those funds quadrupled -- which means, even more debt.
If interest rates stay high for several years, our national debt will balloon out of control. At a point we'll have no money left for anything but interest on the debt, or we'll just print so much money to pay interest on our national debt inflation will come back with a vengeance.
At some point I'd love to see a grand bargain where we 1) raise taxes a bit and 2) lower spending a bit. I'm not holding my breath...