A default? Not.
Each time there’s a big hype about the debt limit crisis, it seems to be resolved at the last minute.
Today the Wall Street Journal editorial board makes a point that I also have made repeatedly on this site: there is zero chance of a default on sovereign debt arising out of the current budget impasse in Washington. The press hysteria, which we have seen before, arises out of a deliberate misuse of the word “default.”
The correct way to use the word is:
“It’s de fault of de Democrats”.
Hey, don’t worry, be happy, mistakes happen… (BBBecause…)
“Biden national security adviser pressed on $3 billion mistake in Ukraine aid: ‘Hell of an accounting error’ ”
https://www.foxnews.com/media/biden-national-security-adviser-pressed-3-billion-mistake-ukraine-aid-hell-accounting-error
(Or maybe we should say, “Mistakes were made…”)
I wasn’t aware of the point being made in the WSJ as quoted at Powerline. It should be more out in the open.
The latest Triggernometry podcast interview with Jim Rickards is a great tutorial in easy to understand terms on why this debt ceiling increase (and the past several) are very, very different.
https://youtu.be/8lllbqkI1Tw
The chart midway down this page: https://www.thebalancemoney.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287
Is helpful to understand where we are. Talking about dollars is meaningless. The population fluctuates, the value of the dollar fluctuates (almost always downward), tax revenues fluctuate and the debt fluctuates.
So a ratio is more useful than absolute numbers. Dividing the annual, gross domestic product of the U.S. by that year’s debt obligations gives a useful ratio for comparison. The chart shows that, as well as very, very brief statements on significant events that may have affected the ratio that year.
The ratio typically went up in times of war, or recession or depression (as high as 119% at the end of WWII), but Congress and the administration (regardless of party) would work to get it back down to a 30% – 40% range so we’d be at a safe level. In ’82 it started creeping up as Reagan combatted the recession and ’84 was the last time we saw a percentage in the 30s.
The ratio is now more than three times what is was in 1985! It has been in triple digit territory for a decade. The only other time we hit triple digits was for two years at the height of WWII.
“Oceania has always been at war with Eastasia.”
Regarding this: “The ratio typically went up in times of war…”
This factors into the concept of a “peace dividend.” A nation at peace with no existential threats can use its tax revenues to service debt and grow the economy. One can see that it is sometimes fiscally sensible to take on debt to fight a war. We saw a tremendous, economic boom after WWII. Not immediately, it took a few years to get going, but the U.S. was the dominant, global power and benefitted mightily from that.
The climate war, war on terror, Afghanistan war, Iraq war and war on drugs do not seem to be generating “peace” dividends. Hmmm…
“Oceania has always been at war with Eastasia.”
In the Triggernometry interview I cited Rickards also explains that the U.S. has defaulted on debt many times, but people ignore those actions.
The US has never defaulted on its debt — except the four times it did
https://thehill.com/opinion/finance/575722-the-us-has-never-defaulted-on-its-debt-except-the-four-times-it-did/
I think the jive is that Democrats consider all Congressional appropriations to be debt. (That’s the only way that their 14th Amendment gambit makes a lick of sense.) Therefore, a failure to spend appropriated funds is a “default on our nation’s obligations.”
There’s some history on that point related to Watergate and the now-lost presidential power of impoundment.
Regardless, the Democrats’ position doesn’t make any sense at all under a constitutional system in which spending money, raising revenue, and issuing debt are three separate powers granted to Congress. Not that a lack of sense has stopped them before. Larry Tribe has already “evolved.”
Kabuki theater.
There is a ‘Debt Limit’ out there, which cannot be changed by Congress passing a ‘law’.
That is when nobody will lend us money. When nobody will buy U.S. Bonds. That is the ultimate ‘Debit Limit’.
David…”There is a ‘Debt Limit’ out there, which cannot be changed by Congress passing a ‘law’. That is when nobody will lend us money. When nobody will buy U.S. Bonds. That is the ultimate ‘Debit Limit’.”
It’s a matter of the interest rate on the debt. People will buy bonds at 8% who would not buy the same bonds at 4%. There are very few financial instruments that can’t be sold at *some* price…which, in the case of bonds, also means at *some* interest rate.
Now is the time for Manchin and Sinema and few other senators to stand up to Biden and tell him he has to compromise. They probably won’t.
The debt limit crisis has not been “resolved”. It has only been delayed. David above has the right it. Reportedly, 81 nations are ready to join BRICS, which if true will inevitably result in the collapse of the US dollar as the world’s reserve currency. When that comes to pass, nobody will lend the US money through the purchase of US bonds and that will be it with sovereign bankruptcy our fate. The US illegally freezing and seizing Russian State funds sent a message; get out of line and the US will ‘confiscate’ your money with the intent to bankrupt your State. That it didn’t work with Russia isn’t an assurance that it won’t work against someone else that displeases US.
Geoffrey Britain,
I have heard several Economists and other money experts state what you have; freezing Russia’s funds was the catalyst to spur other nations to get out of the dollar. What if the U.S. doesn’t like a nation’s climate policy? Or human rights record? Better to not risk a nation’s fiscal future with a country as schizophrenic and unpredictable as the U.S.
In 2005 Russia had the equivalent of about $3Bn in gold reserves. The y = mx + b on the chart is almost at a 45 degree angle from then to today. Now they have about $135Bn. https://www.ceicdata.com/en/indicator/russia/gold-reserves
Russia’s economy did better in 2022 than the U.S.’ and is on track to do better this year.
Let’s go, Brandon!
All gaslighting all the time. The news media is both grossly incompetent and corrupt to the max.
The lying liberals on CNBC and Bloomberg finance channels are hyping the debt ceiling story 24/7. Guests apparently understand that saying anything truthful will result in their being silenced and receiving no more invitations to appear.
Orwellian hardly seems adequate to describe the crazy and the evil that we face.