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Will the United States default on its debt? | ticker VIEWS
Across the United States and around the world – markets, business leaders, financial institutions, governments, citizens – are anxiously monitoring the question of whether the United States will default on its $28.43 trillion debt that it is carrying today
The United States has never, ever defaulted on its debt.
The political leaders in both parties have never let that happen. Until possibly right now.
Australia, to its credit, abolished the statutory debt limit in 2013 and does not face this crisis management issue.
The US statutory debt limit – the amount of money the United States Government can finance – has been raised over the decades by law and is today at $28.4 trillion. That ceiling was broken in July.
The United States Treasury is undertaking “extraordinary measures” to manage the inflow and payment of funds
Money coming in from tax receipts and going out in interest and other payments due, to keep the daily aggregate debt under that statutory ceiling.
But those measures will be exhausted on or near October 18. When that happens, the United States will no longer be authorised by law to pay its creditors.
It is like your credit card reaching its limit – you can’t buy anything further on it. You need a higher credit ceiling from your card’s issuer to keep spending. Good luck!
This is why Congress needs to raise the existing debt limit.
While it sounds simple, it is immensely, intensely, fraught with the rudest, most confrontational politics.
If you are a Democratic president of the United States, and you need to raise the debt limit, your political opponents, who want you exorcised out of office, will call you irresponsible, radical and guilty of fiscal recklessness – and no, we will not give you the votes in Congress to raise the debt limit.
The debt limit has been raised some 80 of times since 1917 – generally on a bipartisan basis. It was raised three times under President Trump. But under President Obama, and now under President Biden, Republicans in Congress are refusing to vote in any way, shape or form to raise the debt limit.
Every responsible economist believes that a default by the United States on its debt will have catastrophic consequences
This includes the possibility of market crashes and recessions in the US and in countries around the world. In the United States, the ability of the government to make cash payments and to continue programs like Social Security and child care and veterans support, could be sharply curtailed and possibly stopped.
Treasury Secretary Janet Yellen has relentlessly argued the urgency of this looming crisis:
“I believe the only way to handle the debt ceiling is for Congress to raise it and show the world, the financial markets, and the public that we’re a country that will pay our bills when we incur them.
When Congress legislates expenditures and puts in place tax policy that determines taxes, those are the crucial decisions Congress is making.
If to finance those spending and tax decisions, it’s necessary to issue additional debt, I believe it’s very destructive to put the president and myself — the treasury secretary — in a situation where we might not be able to pay the bills that result from those past decisions.”
US Treasury Secretary Janet Yellen
The Republican leadership in Congress is arguing: The debt limit is being breached because of all the Biden spending.
You have majorities in the House and Senate – this is your problem, you fix it
As a political ploy, it sounds pretty effective. But the debt limit is always reached on spending that occurred earlier – not the big spending Biden is asking Congress to approve today. A trillion dollars plus of today’s debt is due to the Trump tax cuts.
The Biden spending hasn’t been enacted much less booked yet.
While Republicans say the Democrats have the votes to raise the debt limit, the problem is that Senate Republicans will not let the debt limit extension pass with just a simple majority of 51 (all the Democrats plus Vice President Harris)– they will not yield on the 60-vote supermajority protected by the filibuster.
No one has found a way out of this nightmare yet
The truly frightening undercurrent that is becoming visible is that some Republicans now seem to believe that it is OK for the United States to default – that if that occurs, then the ensuing catastrophe will be at the feet of Joe Biden and the Democrats.
They lose. We win because they will own the country’s agony.
This is not going away. It is not even close to getting solved. The United States may well plunge over the fiscal cliff later this month.
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