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):
>Ratings Downgrade: The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.
> Ratings Downgrade: The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions.
Yes, but there are two other reasons before that (projected fiscal deterioration, high debt burden). So it's in the list of reasons but, not at the "very top".
A high and growing debt burden on the US government has been true for decades, that hasn't changed, what seems to have more impact is exactly the erosion of governance. The constant stand-offs holding the budget hostage isn't a thing that happens with other AAA-rated governments, it's pretty unique to the USA and has been happening constantly for the past decade+.
I believe what the other comments mentioning "at the very top" mean is that it's there on the by-line, not buried somewhere else in the report. To me it makes sense to call it "at the very top".
It is a not solely a two party game with the only outcome a win. It's connected to the economic health of the entire country and likely the rest of the world. Businesses make plans based on future expectations; when Congressional idiot posturing creates uncertainty, this requires planning for volatility, which imposes a cost on every transaction, lending rate, and plan.
The incentive is showing up here. Lose a little rating, it's harder to rotate national debt, and suddenly the ~10% of the budget used to service the debt balloons to 50% as borrowing rates increase. This would be a catastrophe.
That is the "game" being played.
The reason the public isn't outraged is because they don't understand these connections
The game congressmen are playing is getting re-elected. They don't care about
> the economic health of the entire country and likely the rest of the world
Our political system in the US is set up in such a way that those who acquire political power are going to spend as much time and effort as possible keeping it or acquiring more power. Any improvement that comes is secondary compared to getting re-elected
It's demonstrably wrong to put all Congress people into such a simplistic bucket. Plenty of people on both sides understand the economic issues and act accordingly. The belief that all politicians are the simpletons you describe leads to current bad outcomes, and continuing to spread it only deepens the divide.
This basic principle is true in any political system, from communist one party states to corporate ladders.
The more specific problem is that the incentives aren’t aligned, because voters aren’t capable of seeing the relevant causes and effects. When the only thing voters react to is immediate economic conditions, of course politicians fight tooth and nail for more spending when they are in power and cuts when they are not.
Ironic, considering they literally had the power to raise the debt ceiling for two years while they were in Congress. But it's too much to ask that they have less than a year of foresight.
Raising the debt ceiling isn't righteous. The dollar is almost exclusively backed by two things: the petrodollar and the subsequent ability to open the gates of hell in order to defend it.
We are right to consider why we are a primarily export-based economy with a dollar tied so tenuously to oil. Blaming Republicans, when in fact it's a problem of crony-capitalism, is somewhat shortsighted. Some of the richest, filthiest, congresspeople are Democrats. To assert it's one-sided is very sound-bite politics of you. I would go to open secrets and see just how equal congresspeople are in exploiting the national debt for political and financial gain.
The debt ceiling needs increasing when the budget that was already approved needs money. If the contentious part is not spending so much then those Republicans shouldn't have approved the fucking budget at first.
This line of reasoning makes no sense... Holding the debt ceiling hostage is just posturing, and from your comment and some others it really seems to work even in seemingly intelligent people, imagine with the rest of the voters?
It's also a democrat problem in that when dems get power they haven't just decided to eliminate the debt ceiling all together.
But then, that's because moderate/conservative democrats have decided it's to scary to eliminate the debt ceiling (there's not enough votes for that). So maybe still a conservative problem but not entirely a republican problem.
The last few times this particular form of terrorism has been tried, it has achieved little. If the people threatening us had won major victories then maybe the strategy would make a sick kind of sense. Instead they won token policy concessions at best. Causing real harm to the people whose vote you need in exchange for make-believe gains is not generally a good strategy.
But there are actually people deluded enough to say Biden was responsible for the most recent hostage-taking, so hell if know what's going on. Maybe the GOP could actually blow up the US economy without consequences.
Am I reading the insinuations properly, that people are blaming Republicans for the rating change because they dare to question printing unlimited money, and belive if Republicans were more "responsible" and just allowed money to be printed unchecked there would be no problem?
I see no evidence that either party wants to restrain spending when in power, but pretending this is a partisan issue and that one party is at fault for questioning spending as apparently some are doing is reality distortion to a new extreme.
> Am I reading the insinuations properly, that people are blaming Republicans for the rating change because they dare to question printing unlimited money, and belive if Republicans were more "responsible" and just allowed money to be printed unchecked there would be no problem?
If the GOP has an issue with "printing unlimited money", perhaps they should have cut spending when they had full control of Congress and the White House, rather than implementing cut taxes and boost spending:
> blaming [] for the rating change because they dare to question printing unlimited money, and belive if [] were more "responsible" and just allowed money to be printed unchecked there would be no problem?
The debt limit adjustment is to allow the treasury to borrow enough to cover payments already approved by congress. It is meretricious to object to that: if you don't think the money should be spent you should not have approved the spending in the first place.
About 1/3 of the comments in here are excitedly arguing exactly the opposite - that the brave souls holding the debt limit hostage every year are saving the country.
I think that downgrading the US rating is more funny than practical.
I can't help but quote this again: «The U.S. has a comparative advantage as a safe financial haven. We have the world’s strongest military and a stable government. Thus, we have a comparative advantage in producing debt, primarily government debt. That is not necessarily a good comparative advantage to have.» (Arnold Kling)
If there was time to downgrade US debt it would likely be the time when the US rapidly moved and even outsourced its production to China, shutting down local factories. That was the time when the risk for the US might was increasing, should the US-China relations sour (as they have). But of course downgrading wasn't happening then; I suspect it was the other way around.
How reliable are these ratings? In the aftermath of the subprime mortgage crisis we learned their algorithms can be easily beaten (repackaging dog shit securities) or just outright fraudulent.
I'm sure you're trying to say something, but until you spell it out, we're left to guess.
If what you'd like to say is that you think credit risk and ESG aren't related, well, Fitch disagrees.
And rightfully so. Lack of ethics impact credit risk, because it means more graft. Lack of governance impacts credit risk, because it's harder to know where money even went, or to ensure it's well spent. Lack of sustainability means the concern won't exist at some point, which, well, pretty large risk if your credit happens to be long running.
To me the fact that the US gets to dance around defaulting while still holding a AAA rating shocks the conscience. It’s not sustainable. One of these days there’s going to be an oopsie we just defaulted followed by 1000 articles about why it’s not that bad and we should’ve defaulted a long time ago and it won’t happen again. But the bottom line is if the US government were a person, I’d be a little hesitant to lend him money I needed back.
Points about the military and the strong, diverse economy mean nothing to me. They’re true and the US still barely pays it’s creditors.
Sure. The U.S. could run a surplus like it did under Clinton. Surplus & time -> debt paid off.
But the only way we know to get back to those days involves raising taxes on the rich. The people ranting and raving about the debt would never agree to raising taxes, so the deficit hawks will continue blowing up the deficit until things fall apart completely.
Sure, but it's not desirable. Among other reasons, federal debt is considered the safest kind of bond an investor can buy. It's nearly the same as parking your money in an FDIC insured savings account, except there's no limit to how much of it you can own. In recent memory corporations, banks, and some investors have made requests that the federal government issue more bonds because the demand is so high.
MMT paired with UBI. You can essentially wipe out all debt by printing as much money as you need, but compensating for inflation by covering everyone's basic living costs. It seems like one of the only plausible ways forward into post-capitalism.
There would be serious, worldwide repercussions involved in tanking the USD.
And by flooding the economy with cash, UBI would make the problem worse, not better. Surrounding economic variables (prices, supply, cost of labor, exchange rates, etc.) would ensure that the UBI wouldn't be enough to support people. A planned economy is not the solution either - see every time that's been tried in history.
The only solution is a long-term, consistent commitment to conservative fiscal policy -- reducing unnecessary government spending, reducing the debt, balancing the budget and working within it, etc. Anything less is inviting economic trouble.
> A planned economy is not the solution either - see every time that's been tried in history.
In case you haven't noticed our current economy also does not work. We are going to have to move to a new system sooner or later. Technology and productivity have reached a point (or are near the point) of being able to provide the basic living essentials to all citizens. The longer we delay accepting that, the more pain we'll all be in for.
> In case you haven't noticed our current economy also does not work.
Define "work". The problems I know of have to do with improper or incorrect governing, not the structure of the economy. These are problems with government:
- Minimum wage has not been inflation-adjusted over the years
- Antitrust legislation has failed to be enforced. The US government of 1920 would not tolerate the conglomerates, mergers, and anti-consumer practices of companies today.
- DAs around the country (and federal prosecutors as well) are failing en mass to prosecute crime.
I agree those are huge problems! They don't have anything to do with your proposed solution of conservative fiscal policy though. Government spending isn't the issue, corruption and centralization of power is. That we keep ending up with a handful of billionaires who have an insane amount of influence over our society is partially the fault of the government as you point out.
The economy is the problem. It doesn't accurately model externalities that we now know are important (climate change) or that we've always known were issues (inequality). The economy can be doing great and all of that value can be captured by a few people at the top, who then wreak havoc on everyone else. All the while the eco-sphere gets toasted because extracting value from natural resources at an ever increasing pace is also good for the economy.
Both the environment and wealth inequality have hit or are very close to hitting the breaking point. My original point about MMT was that we'll need a radically new system to fix the problem. The one we have can't be brought there through the control mechanisms that exist.
The Covid spending spree has consequences. I wonder in an alternative universe of mass unemployment due to business collapse whether we would still have a AA+ rating but through a different path.
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...