Debt Ceiling Kabuki: Republicans Will Cave and U.S. Government Finances Will Get Even Worse: News: The Independent Institute

We have started again. Treasury Secretary Janet Yellen warns that the federal government has reached its borrowing limit. Despite the Treasury’s “extraordinary” actions, the government’s ability to meet payments will be exhausted in a matter of months.

Leaders of the Republican-controlled House of Representatives say the House will not vote to raise the debt, which would allow for more borrowing, without spending cuts. But White House and Democratic leaders are rejecting the idea.

Soon the bond markets will be shaken. Fear-mongers will raise the alarm that the United States will default on its debt and will not be able to pay Social Security and Medicare.

The White House will bet that the standoff will hurt the opposition, which it will, and then a deal will be reached that, in particular, will affect the House led by the GOP entering as the White House and Democrats agree to meaningless budget cuts. (actually, planned expansion cuts, not actual cuts) which, if they happened, would make little difference in the grand scheme of things.

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All this while the US chart continues to slide into banana republic unviability.

We have been here before. There is no indication that the battle between the Republican House and the Democratic White House over the debt ceiling will not be similar.

To begin, let’s be clear about the risk of the United States defaulting on its debt. There is none. The United States can and will continue to borrow and increase its way out of the debt crisis. Even if the debt is not raised (perhaps in la-la land), the government can always prioritize its spending, just like you and I do, by issuing loans and honoring the provisions for retirees and the elderly. Yes, it should have stopped some payments (that’s what prioritizing is all about, right?), but it won’t change.

Let’s be clear about one more thing. The need to borrow does not stem from the COVID-19 pandemic or the war in Ukraine. The decline is up 12% from last year alone and was the lowest since last year because politicians could no longer justify the need for more COVID-related spending.

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One of the increases is related to rising interest rates. But the accusation that the Federal Reserve is tightening money because of the debt crisis is silly. The culprits are the spendthrifts who have been draining the U.S. economy for so long, which has led to an astronomical debt that has ballooned.

Monetary policy, in fact, contributed greatly to the financial crisis in the United States government by lowering interest rates for more than a decade, making it appear that excessive borrowing is a minor sin that goes unpunished.

The result of financial fraud and low interest rates is that public debt since the new millennium has increased from about $6 trillion to about $31 trillion, an increase of almost five times the rate of interest growth.

This myth must face reality soon. That time is now – it’s the Fed to let interest rates rise to fight inflation.

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US government spending will worsen in the future, with interest rates expected to triple over the next decade.

Continuing to raise the debt but not doing anything about the dysfunctional US government is why we are here. If we count appropriations, spending measures, defense spending and interest spending, there is very little that Congress has discretion (defense cannot be affected by politics, some by law).

One cannot pursue conflicting goals for a long time and expect consistent results. The health government, the military government and the Financial Administration are all related.

The US government long ago decided to follow the first two and discard the third. It will soon find that the two are incompatible—precisely because, without an overriding sense of financial responsibility, there is no way to support the two behemoths.

The House GOP may want to cut spending in order to increase the debt ceiling, but it will lose because, in the political game, nothing is visible. Especially using “expensive”. It’s still worth a try-I think.


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