THE DEBT CEILING FIASCO !?

EVERY DAY that Congress stalls 
it adds to nation's DEBT .
AND HURTS THE ECONOMY !

level The US government has the power to print dollars whenever it wants, so yes, in theory the debt ceiling can rise forever.

Apparently the last time the US paid off its debt was 1835. How is it ok to keep pushing up the debt ceiling? Isn't there a point of no return vs the capacity of the population and the taxable income of the corporations?t might be very bad... maybe. Way back in May 2011, approximately 40 percent of US government spending relied on borrowed money. Critics have argued that the debt ceiling crisis is "self-inflicted . It's a market faith question and a legal question, as the (1)>>14th amendment prohibits defaulting on debt. The debt ceiling won't actually cause a default on debt (as that's illegal) but the government would have to figure out how to reconcile servicing the debt with spending outlays they also voted for.So it'd get kicked over to SCOTUS. But that simple fact will not stop House Republicans from using the borrowing limit to try to force (1.2)>>President Joe Biden and congressional Democrats to agree to federal spending cuts.Were that to happen, we would be in the early stage of a global financial crisis. The Dow would plunge by thousands of points per day, and the credibility of the US – its trustworthiness as a country that pays its debts on time – would be substantially eroded. The likely result of that would be them eventually telling the federal government they have to cut spending if they can't borrow more.The real uncertainty is how much this whole thing freaks out the market and results in capital flight. What's more, given the uncertainty on what's going on currently, economists will probably argue for another 50 years what effect this had and what effects were underlying issues. (2)>>If the dollar ceases to be the world's reserve currency right after a debt ceiling debacle, I think it'll be pretty easy to point to that as a direct cause. The economic benefits to the US for having the world's reserve currency are pretty huge and I'm sure there have been numerous papers calculating the economic benefit to us. If people start to worry that a government won't be able to pay its debts, they're less willing to lend money to it, which drives up the government interest rates - making it more expensive for the government to borrow money.  (3)>>Which is a nasty cycle, as the more expensive borrowing becomes, the more the government has to borrow to pay off its previous loans. And eventually the government will default on its loan repayments.There are different ways a country can deal with that; sometimes the IMF will intervene, offering a bailout, giving the country a low-interest loan to cover its debts (often with conditions on how the country has to get its finances back on track - something that tends to be unpopular as it often involves tax increases and spending cuts). The classic way out is for a country to devalue its currency; effectively print enough money to cover its debts.  (4)>>Obviously this doesn't tend to go down well (and is tricky if the debts are in other currency), it tends to lead to hyperinflation and the currency to crash, making it much more expensive to import things. The other option is for countries - particularly those who are owed money, to help restructure the loans.Sri Lanka defaulted on some of its loans last year, as part of an ongoing economic crisis they're having, but with financial help from India seem to be getting back on track. Russia technically defaulted on some of its loan repayments last year, but that was due to sanctions as a result of their invasion of Ukraine (it wasn't that they didn't have the money, they just couldn't get it where it needed to go).It's silly to talk about the USA having a sovereign debt crisis any time soon when investors from all around the world are getting into bidding wars to buy  (5)>>US sovereign debt to the point where they drive their own return on investment below the inflation rate. There are a few goldbugs left who flee to precious metals whenever the economy gets rocky, but most of the grown-up world, when their other investments start to look shaky, rush to buy US sovereign debt.

  NOTES AND COMMENTS : (1)>>4th amendment prohibits defaulting on debt. . My understanding is that Article 1 section 8 of the Constitution states that only Congress can take out new debt for the Federal government and the 'debt ceiling' was basically a way to simplify that process so instead of a bunch of individual bills to take out debt when needed Congress just has to pass one bill every once in a while authorizing a raise in the total amount the government can take out and then the Executive branch/Federal agencies gets to use that as needed.So under that understanding if you ruled the debt ceiling unconstitutional you're in an even worse situation where the House is now more involved in the debt than before as they have to approve every individual instance of debt going forward.(1.2)>>President Joe Biden and congressional Democrats to agree to federal spending cuts. The parallels between the current situation and the debate that led to automatic cuts known as sequestration 12 years ago are not lost on McCord. In 2011, Republicans had just taken over control of the House and were demanding spending cuts in exchange for raising the debt ceiling. The crisis ended in the Budget Control Act, which forced hundreds of billions of dollars in spending cuts over the next 10 years.The Biden administration is preparing to ask Congress for the largest Pentagon budget in history, according to the Defense Department’s chief financial officer, as partisan squabbling over the debt ceiling raises the specter of deep cuts to the military’s funding plans.The national debt is the consequence of actions already taken by the Congress. It represents the bill for past wars, past tax cuts, and spending that has already occurred. To not honor such debt because of an arbitrary limit would produce uncertain but likely disastrous consequences for financial markets and the economy. It would increase not reduce future government spending due to the likely rise in interest rates. Additionally, any slowing of the economy in response to a threatened or actual default would automatically balloon deficits.(2)>>If the dollar ceases to be the world's reserve currency right after a debt ceiling debacle. If you started printing dollars like crazy, eventually people would lose faith in it as a currency and start using something else (maybe Euros?) to do business. Something like this is currently happening in Argentina, where local businesses are starting to send each other prices in US dollars rather than in Argentine pesos.It's worth mentioning that we are nowhere near the crisis point with the dollar, and there's actually a strong case to be made that we don't have enough debt.If the debt limit binds, and the Treasury were to make interest payments, then other outlays will have to be cut in an average month by about 20%. That would be necessary because over this period as a whole, the Congressional Budget Office expects close to 20 cents of every dollar of non-interest outlays to be financed by borrowing. In actual numbers: Last year the US paid $724,000,000,000 in interest on the debt. That's the same as the entire military budget and, worse news, interest rates have gone up a lot, like from nearly zero to around 4%. Four percent of the national debt is $1,300,000,000,000, or well over a trillion dollars.(3)>>Which is a nasty cycle, as the more expensive borrowing becomes, the more the government has to borrow to pay off its previous loans.  The federal government on Jan. 19 reached its approximately $31.4 trillion debt ceiling -- which legally caps how much the U.S. can borrow to pay for what tax and other revenue doesn't cover -- and the Treasury Department has since been using "extraordinary measures" along with its current cash flow to keep the government's obligations paid. The last time the U.S. government posted a budget surplus, Michael Jordan was still playing in the National Basketball Association. That was 2001, the first year of George W. Bush’s presidency. Since then, the federal government has been running ever larger deficits. And there is no fiscal relief in sight.But when it comes to fiscal arithmetic, U.S. taxpayers haven’t had to settle the bill. The U.S. Treasury has been able to borrow at especially low rates because it is the provider of the world’s safe assets—that is, the dollar is the world’s reserve currency. Investors around the globe use Treasuries as foreign-exchange reserves and as the collateral that ensures the smooth working of international financial markets. A default on U.S. debt could also shed 3 million jobs from the economy, drive up the cost of a 30-year mortgage by an average of $130,000 and shrink 401(k) savings for a typical worker near retirement by $20,000, according to a report from center-left think tank Third Way. Experts say a U.S. default could wreak havoc on global financial markets. The creditworthiness of U.S. treasury securities has long bolstered demand for U.S. dollars, contributing to their value and status as the world’s reserve currency. (4)>>Obviously this doesn't tend to go down well (and is tricky if the debts are in other currency). So far in 2023, not a day has gone by on Capitol Hill without lawmakers jousting over the debt limit, as Democrats press for a quick, clean increase in treasury borrowing authority and Republicans insist on first nailing down significant reductions in future government spending.Democrats and other economists view the government’s borrowing costs as manageable relative to the size of the economy and maintain that making spending cuts is unnecessary. They largely support raising taxes as a way to reduce the deficit, an approach that most Republicans reject.A debt horror fairy tale: The debt cap is ~$97,000 for each man, woman & child in the USA and at a 3.4% 10 yr bond rate costs $3,300 just to tread water on interest. A family of 5 gathers at the dinner table & each of the kids say "No mommy, daddy I can't afford even $3,300 but can sell my bike". This leaves mommy & daddy facing paying $16,500\yr just to tread water (the family's $485k share of the debt is probably bigger than their mortgage) and the 4 gramps & grannies paying $13,200\yr from their social security & savings (until the deficiencies from the cat food diet claims them at which ...(5)>>US sovereign debt to the point where they drive their own return on investment below the inflation rate.It's quite a quandary the Fed is facing. To fight inflation, the Fed has to raise interest rates to slow the economy, but doing so also increases the cost of the revolving federal debt. The higher cost to service the huge revolving national debt in turn adds to the budget deficit, which then further adds pressure to raise the interest rate. It's becoming a self-feeding loop. Let's hope this self-feeding loop doesn't become a runaway, self-feeding loop. It's like watching something getting ever closer to a black hole. As that thing reaches the point of no return, it will fall into the black...