Today, the United States reached its debt ceiling, which is the maximum amount of debt that it is allowed to have under current legislation. Secretary of the Treasury Janet Yellen can borrow money from pension funds and such to keep up with debt payments and government obligations until June but the responsible thing would be for Congress to immediately either raise the debt ceiling or suspend it. (The most responsible thing would be to eliminate the debt ceiling but no one is even discussing that.)
Like many other governments and corporations, the United States raises some of the money it uses for its operations through issuing bonds. Perhaps you are familiar with the US Savings Bonds program or with Treasury Bills, often called T-bills. The purchasers of these financial instruments are basically loaning money to the government, which then pays it back with interest on the maturity date. While some of these are held by individuals, the vast majority are held by large financial institutions, like banks and mutual funds, or by foreign governments. The United States dollar is considered the world’s reserve currency because of its stability and the reliability of the US government.
If Congress does not pass an increase in or suspension of the debt limit, the US government would default on its bonds, which could cause a steep downturn in both the stock and bond markets, a severe recession, higher unemployment, rising interest rates on loans, and higher prices. The impact would be global because many US government financial instruments are held in or by other countries. It would also cause some countries to mistrust that the United States will keep its word in other areas.
The US government also would not be able to pay its workers or to fully pay Social Security, veterans’ benefits, nutrition programs, and all the other programs that the federal government provides. This would be a huge hardship to many of their constituents, so why would Congress hesitate to raise the debt ceiling?
Politics.
Apparently, one of the things Kevin McCarthy promised in order to get enough “yes” and “present” votes to win the Speakership was that he would not pass a clean bill to raise the debt ceiling. Instead, McCarthy promised that the debt ceiling increase bill would mandate spending cuts, including to programs that are earned benefits, like Social Security.
This doesn’t make sense. The debt ceiling issue has to do with paying the bills for spending that has already been authorized by Congress. The time for debate about cutting the total amount of government spending is when debating appropriation bills for the next budget year.
Furthermore, the Fourteenth Amendment, Section Four to the US Constitution states, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” It seems that the House Republicans are trying to question the validity of public debt by threatening to default on it.
It’s also telling that Republicans passed debt limit increases without making a fuss three times during Donald Trump’s presidency when the budget deficits were higher than they are now under President Biden. Part of the reason deficits were higher was that the Republicans passed large tax cuts for the wealthiest individuals and corporations, thus reducing revenue. At the same time, they cut the budget of the Internal Revenue Service so that it was more difficult to audit and catch high-income tax cheats.
It’s hypocritical for the Republicans to be complaining about the size of the national debt now, because it increased so quickly during the four years of the Trump presidency. 25% of the total national debt is attributable to the Trump years.
If the Republicans were serious about balancing the budget and beginning to pay down the national debt, they would be looking at ensuring the wealthy are paying their fair share in taxes. Current law, with lots of loopholes for the wealthy, often has the very rich paying a lower percentage of their income in taxes than their average employee does. Yet, one of the first pieces of legislation the Republicans in the House passed was to rescind that increased funding to the IRS to upgrade their systems and audit more high-income earners. This bill would result in lower tax revenue as tax cheats would have a lower chance of being discovered and forced to pay what they owe. Fortunately, the Senate will not take up this House bill so it has no chance of becoming law.
I have already written to my member of Congress, Republican Marc Molinaro (NY-19), to ask him to join with Democrats and the reasonable Republicans in the House to pass a clean debt ceiling increase or suspension. If Speaker McCarthy won’t put the bill on the floor, they may need to file a discharge petition to get the bill put up for a vote.
Unfortunately, that process takes several weeks, so they had better start now. Secretary Yellen will enlist whatever shuffling of resources are allowed while they do it, but the clock is ticking and folks – and the financial markets – will be worried.
Of course, it would be faster and easier if McCarthy put the good of the country first and introduced a clean bill today. It would also show that the House Republicans want to cooperate in the governance of the country to “promote the general welfare,” as the Preamble to the Constitution states.
Given that they have thus far not shown this inclination, I won’t hold my breath.
*****
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Top of JC's Mind 
Thanks for the very detailed picture of the US finances. It seems this is a very high stakes issue which I hope gets resolved soon 🙂
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I hope so, too. Thanks for reading and commenting.
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Very welcome. Hope your day is going well 🙂
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Thanks! I actually managed to accomplish a few things today, which is nice. I hope you had a good day/evening, too!
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Yes I did thanks and glad to hear that 🙂
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Time for a fifteen per cent across the board cut in sending plus a ten per cent tax increase. Time to right the ship, before it is sunk by too much debt. Now is the time.
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I think it is better to be targeted than across the board. The current income tax system has too many loopholes that allow wealthy individuals and corporations avoid paying their fare share, often while paying their employees so poorly that they need safety net programs to afford basic needs like housing, food, and health care. Social Security funding would be secured if those with income over $400,000 and their employers paid Social Security tax on all of their earnings instead of just the first $165,000 or so.
One of the most out-of-control parts of the federal budget is defense spending. For example, Congress passes money to support military contractors who operate in their state, even when the Pentagon doesn’t want that hardware. The government would also save billions of dollars by moving to a single payer health care system. We should totally cut all subsidies to the oil and gas industry.
Our government needs to “promote the general welfare” as the Constitution says, not coddle the already rich and powerful.
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I agree. Across the board cuts don’t work. I used that term to see what reaction I would get. We need to get debate going about what should be cut. Also selective taxes should be raised. And what wars should not be funded. Excess debt will eventually collapse a country. We are moving in that direction.
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Having a major political party seemingly willing to default is the bigger threat at the moment. Given that the dollar is the global reserve currency and that US government bonds have long been viewed as one of the most stable investment vehicles, the risk of a credit downgrade that would make borrowing even more expensive is counter-productive.
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I agree it is a major threat, but it is the democrats who are apparently willing to go into default rather than negotiate.
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I disagree. The debt ceiling is about past spending and the Trump administration is responsible for about a quarter of the total national debt. Congress raised the debt ceiling three times during his term without Republicans objecting to the amount of debt and without Democrats demanding budget or tax policy changes. Congress appropriated the money and it is their responsibility to pay the bills in accordance with the 14th Amendment. The Democrats have consistently stated that default is not an option and currently have a discharge petition to bring a clean debt ceiling bill to the House floor.
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If the government manages its expenses right, there will not be a default on any debts. Funds are still coming in and will continue to do so. Currently, we are borrowing twenty five cents of every dollar we spend. With careful planning and management we would be able to reduce spending by that much without defaulting on any bills or debts that come due.
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But that’s the problem. Treasury has been reallocating money for months now to keep paying the bills but we are within days of getting to the point that there is not enough money to pay all our obligations. The executive branch is charged with carrying out the legislation Congress has enacted. Congress is responsible for making funds available to do so. They can borrow and raise revenue to cover these already incurred obligations and they can pass future budgets that come with sufficient revenue, but there are no signs that the Republican caucus is able to do this.
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I just read your bit on how the mind of JC works. It was like me reading about myself. I come up as INTJ so not exactly, but pretty close. I know how you feel about participating in discussions. I have also taken the Big five personality tests. The results match up pretty well. Introversion is at about forty per cent for me. Neurotic closer to ninety.
Back to the subject. The government agencies are making plans on what to do if the situation gets worse. In the past shutdowns there have been furloughs if non essential employees, office closings, and employees not getting paid even those still going to work, until the shut down was over. I call not paying employees when their checks are due a default but the press and administration do not.
I am pretty confident the parties will come to an agreement soon. The party leaders are meeting and discussing a solution and resolving the issue.
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Yes, hoping they do resolve it. I think the term default is reserved for not paying on bonds and T-bills and such, as opposed to deferring payments to employees as has happened in past shutdowns but that are paid out as soon as funds become available. Of course, previously that has always been not having budget bills passed, not debt ceiling.
I’m concerned that dozens of House Republicans are saying they won’t vote for any deal which McCarthy negotiates, which would make things very messy as they would need a large percentage of the Democratic caucus to agree to vote for the measure.
It’s interesting about the INFJ/INTJ connection. My F/T numbers are quite close to each other. My biggest range is being very, very strong on introversion rather than extroversion.
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