News Article: Treasury secretary says US to hit debt limit on Jan. 19

[PaulD]

Here are a couple of articles on the debt ceiling:

Why America has a debt ceiling: 5 questions answered

This one has a lot more detail: The Debt Limit Since 2011

 

[crimsonaudio]

I want to clarify a distinction that is often missed. Raising the debt ceiling is not authorizing new spending.

I mean, tomato / tomato.

By continuing to allow them to spend more than we can afford, we're guaranteeing a worse life for our kids and grandkids.

How the machinations work is less important than the reality that we're recklessly spending more than we can afford to, every single year. Heck, we had Biden fans cheering that he reduced the deficit! Congratulations! You spent a little less this month over your credit line than you did last month. Wow. so amazing!

People go on and on about things like climate change (I'm not a denier) when in reality we're literally screwing ourselves, but more importantly future generations because we don't want to deal with the uncomfortable truth that goes along with it - we don't want to change because we like what living in debt feels like. The national debt is a far more immediate danger to our union than climate change, imo.

But it's politics, and both sides will once again champion their role in kicking the can down the road while castigating the other side for its 'reckless spending'...

SMH

 

[Bamaro]

I mean, tomato / tomato.

By continuing to allow them to spend more than we can afford, we're guaranteeing a worse life for our kids and grandkids.

How the machinations work is less important than the reality that we're recklessly spending more than we can afford to, every single year. Heck, we had Biden fans cheering that he reduced the deficit! Congratulations! You spent a little less this month over your credit line than you did last month. Wow. so amazing!

People go on and on about things like climate change (I'm not a denier) when in reality we're literally screwing ourselves, but more importantly future generations because we don't want to deal with the uncomfortable truth that goes along with it - we don't want to change because we like what living in debt feels like. The national debt is a far more immediate danger to our union than climate change, imo.

But it's politics, and both sides will once again champion their role in kicking the can down the road while castigating the other side for its 'reckless spending'...

SMH

One way or the other, it all boils down to greed/avarice.

 

[Tidewater]

Most congressmen understand this but take advantage of their constituents who don't...

I imagine the political Armageddon that would happen if the federal government were to cut spending $700 billion for next FY and increase tax revenues by $700 billion. That would be entertaining to watch.
That is why I believe ultimately, we will end up inflating away this debt. Those who own paper assets denominated in dollars will be screwed, but those who own hard assets will be okay.

 

[crimsonaudio]

I imagine the political Armageddon that would happen if the federal government were to cut spending $700 billion for next FY and increase tax revenues by $700 billion. That would be entertaining to watch.

Well, it's going to happen eventually. I'm not a prognosticator, but this cannot go on indefinitely.

That is why I believe ultimately, we will end up inflating away this debt. Those who own paper assets denominated in dollars will be screwed, but those who own hard assets will be okay.

While that may work, it will result in one of two things:
- we cannot borrow money any more, or
- we only borrow money at a higher interest rate, which we can (apparently) barely cover now.

No way a country like China will allow us to inflate the debt away while continuing to invest in the US.

And all of this assumes China (and others) will be in a position to continue to lend us money.

At some point the US citizens are going to have to demand we stop borrowing EVERY SINGLE YEAR and expect some sort of fiscal responsibility by the clown show that is the US congress or it will all come to an end.

 

[Bama_N_Va]

31T in debt shows how useless this 'debt ceiling' law is. In practice, it seems like all it does is give various sides an opportunity to posture and pretend that deficits/debt mean anything at all to them. I seriously doubt that this law has ever made any significant progress in reigning in any spending at all.
Why not repeal it?

And replace it with what.....An amendment in the Constitution forcing balanced budgets????

 

[Tidewater]

Well, it's going to happen eventually. I'm not a prognosticator, but this cannot go on indefinitely.

While that may work, it will result in one of two things:
- we cannot borrow money any more, or
- we only borrow money at a higher interest rate, which we can (apparently) barely cover now.

No way a country like China will allow us to inflate the debt away while continuing to invest in the US.

And all of this assumes China (and others) will be in a position to continue to lend us money.

There are three options: inflate the debt away, pay it off, or repudiate the debt. The consequences of all three are extremely painful. I think paying it off will, in the long term, be the least painful, but that requires us to stop digging now. The American voter has repeatedly shown he is either (a) too stupid to understand or (b) willing to screw the country and posterity to have today's benefits.
As for China (and other creditors), the best case is that they will realize what we are doing and stop lending, but they will effectively lose the money they have already lent. At that point, the US will have to stop deficit spending immediately, since no sane person would ever buy another T-bill.

At some point the US citizens are going to have to demand we stop borrowing EVERY SINGLE YEAR and expect some sort of fiscal responsibility by the clown show that is the US congress or it will all come to an end.

I wish that I shared your optimism. "The average American voter has below average intelligence."

 

[UAH]

The creditors have purchased treasury bonds principally China, Japan and Saudi Arabia. When they stop buying our debt we will be forced to pay a significantly higher interest rate to find buyers of our new issues. This is not good for either the debtor or creditor as rising interest rates will lower the value of the bonds previously issued.

For anyone hearing the discussion about Congress failing to raise the US Government Debt limit which is essentially a perfunctory step to approve funding the bills that Congress has previously passed including the Defense Appropriation Bill passed this year and the Republican corporate tax reduction passed during the Trump administration. Republicans are saying now without significant reduction in spending on the Bills passed under Biden they will refuse to raise the debt limit.

If that happens one of more significant impacts would be our inability to service the interest on the debt held by our creditors. Our default on our debt would be one of the most significant economic events in history. It could immediately cause a review of the US's credit rating from AAA, discount the value of Bonds outstanding, raise the interest cost on servicing the debt in the future and immediately create questions about the dollar being the world's reserve currency.

A very dangerous game that the Republican's are playing with the Country's economic future although no one in government is blameless in this mess.

 

[JDCrimson]

Simple fact is the American voter is not being given rationale measured proposals to vote on. I would vote for more taxes if it was used exclusively to retire debt. The Democrat proposal of levying additional taxes on $400k or more earners is too low imo. Let's start with taxing people more heavily higher up on the ladder first. Inflation at its current pace will see more people fall into the $400k bracket and those folks already pay the lionshare of taxes because its mostly earned income. Investment income is not being taxed enough. To reboot the sysyem that dynamic should be reversed.

Nothing will change until the Boomers get theirs. Its incredible but the idea of retirement has only originated with the last 2 generations and will prove to be unsustainable after those 2 generations while the rest of us work to support their retirements. The last 2 generations in political leadership is responsible for what will likely be $40T of debt before they relinquish their positions.

Back in college, i could tell you what how much currency would have to inflate to balance that back to zero. But im old and rusty. But I don't think we could fathom what a loaf of bread would cost in that equation...

There are three options: inflate the debt away, pay it off, or repudiate the debt. The consequences of all three are extremely painful. I think paying it off will, in the long term, be the least painful, but that requires us to stop digging now. The American voter has repeatedly shown he is either (a) too stupid to understand or (b) willing to screw the country and posterity to have today's benefits.
As for China (and other creditors), the best case is that they will realize what we are doing and stop lending, but they will effectively lose the money they have already lent. At that point, the US will have to stop deficit spending immediately, since no sane person would ever buy another T-bill.

I wish that I shared your optimism. "The average American voter has below average intelligence."

 

[Tidewater]

A very dangerous game that the Republican's are playing with the Country's economic future although no one in government is blameless in this mess.

The Republicans will bluff. The media will find some innocuous spending area and blame the Republicans for blocking spending in that area. The media will screech. The Republicans will fold and apologize for having started in the first place.
Rinse, repeat.
Plus ça change, plus c'est la même chose.
Meanwhile, the US will kick the debt can further down the road and no one will take any substantive steps toward dealing with the greatest existential threat the US has ever faced.

 

[Tidewater]

Here is the solution.

Getting there will hurt hundreds of millions of people, however.

 

[Huckleberry]

https://twitter.com/i/web/status/1614980117465337856

Republicans are demanding that Democrats negotiate on the debt ceiling. Democrats have a simple and necessary response: No. "In exchange for not crashing the United States economy, you get nothing," one Dem senator said. "You don't get a cookie."

 

[crimsonaudio]

The last 2 generations in political leadership is responsible for what will likely be $40T of debt before they relinquish their positions.

Had never really considered that but it's 100% truth. Wow.

 

[Bamaro]

And replace it with what.....An amendment in the Constitution forcing balanced budgets????

The way it should work:
Borrow money during economic downturns
Pay back during upturns.
Net zero over the long term.

 

[Tidewater]

The way it should work:
Borrow money during economic downturns
Pay back during upturns.
Net zero over the long term.

That is the way classical Keynesian theory should work.
I'm not an adherent, but I could live with deficit spending during recessionary periods if we ran surpluses during inflationary ones.
Instead, during inflationary periods we run deficits, and during recessionary periods we run bigger deficits.

 

[TIDE-HSV]

And no one has mentioned the broken tax system...

 

[Tidewater]

https://twitter.com/i/web/status/1614980117465337856

Republicans are demanding that Democrats negotiate on the debt ceiling. Democrats have a simple and necessary response: No. "In exchange for not crashing the United States economy, you get nothing," one Dem senator said. "You don't get a cookie."

Could you answer a question for me, please?
The federal debt stands at $31.4 trillion at the end of FY 2022.
The federal government spent $475 billion in FY 2022 to finance debt already undertaken. Interest rates have gone up since 30 September.

What fiscal policy exactly would you adopt if you were in charge and could dictate policy?

 

[Bama_N_Va]

I wonder how much we actually paid on the debt, not debt payments, just debt. I think its $125B.

 

[jthomas666]

Could you answer a question for me, please?
The federal debt stands at $31.4 trillion at the end of FY 2022.
The federal government spent $475 billion in FY 2022 to finance debt already undertaken. Interest rates have gone up since 30 September.
View attachment 31493
What fiscal policy exactly would you adopt if you were in charge and could dictate policy?

In very broad strokes...
1. Repeal Trump tax cuts.
2. Raise taxes on the opt tax bracket.
3. Close a bunch of loopholes.
4. Implement a 5% across the board budget reduction, excluding Social Security and Health care. (No specifics on how to implement, but the general guidelines are to begin by reducing middle and upper management. Basically, streamline.)

Now, will this have a massive impact? Probably not. (I'll also be the first to state that I pretty much know jack about tax and budget policy.) At the same time, we didn't get into this in one year, so it's silly to think that we'll get out of it in a year. The important thing is to get things moving in the right direction.

Repeat the next year. After two years, re-evaluate and adjust.

IMO, one of the key sources of this death spiral is that the policy makers have separated tax policy with spending policy, instead of thinking of them as two sides of the same coin.

 

[TIDE-HSV]

And still the real root of the problem remains undiscussed...