Yellen warns of U.S. default risk by early June, urges debt limit hike
reuters.com
reuters.com
Every year Congress passes a budget that sets revenues and expenditures. If revenues exceed expenditures there is a budget surplus; if expenditures exceed revenues there is a budget deficit. Mathematically, the debt outstanding is simply the sum total of all annual budget surpluses and deficits going back to the founding of the nation. The required CHANGE to the debt over the course of a year is determined by that annual budget surplus/deficit, having a separate vote on it is absurd.
"The Budget" as proposed by the President every year (at a cost of millions) is often ignored pretty much entirely. Congress only sometimes passes their own budget (technically called a budget resolution), since that resolution only impacts certain procedures, and is not technically required.
Instead what matters are authorizations and appropriations (and backdoor appropriations).
Authorizations are occasionally passed, and set a cap on how much the government can spend on any area.
Appropriations are passed yearly and tell the government how much they to spend in each area, which cannot be greater than the authorized amount.
If something is authorized but congress forgets to appropriate money for it, it is usually still spent in practice either from general appropriations of the organization, or if not applicable, by pretending there was an appropriation of the correct amount. Similarly, if something is appropriated but congress never authorized it, the money will still be spent.
Appropriations are generally viewed as required spending. The executive cannot just choose to only spend half the amount appropriated for building tanks (that the Army does not want anyway!). Thus congress largely controls both much gets spent. They also largely control the amount of income the government makes, by controlling taxes. As spending basically always outpaces income, the rest gets made up via debt, largely by selling treasury bonds.
Yet Congress sets an needless artificial cap on this.
And I mentioned "backdoor appropriations". Occasionally congress accidentally writes a law in a way such that it mandates that the federal government pay something in certain situations. If they do so, then the government must spend that money, appropriated or not, as to not pay would violate the law.
Plus congress has created some really complex rules about how much the government can spend that makes their jobs much harder. Much of this is in the name of nominally "balancing the budget", despite the fact that expenditures always outpace income, so obviously the various loopholes in those rules are being constantly exploited.
Congress could drastically simplify the whole thing by getting rid of the numeric part of the authorization concept, getting rid of budget resolutions, getting rid of debt ceiling, and getting rid of a bunch of dumb rules that add needless complications. But they don't, so we have this complicated mess instead.
In USA, a member of House of Representatives introduces, or proposes, a spending bill. If both parts of Congress - House and Senate - vote for the bill, it then goes to President for signature into law.
https://history.house.gov/institution/origins-development/po...
“All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills.” — U.S. Constitution, Article I, section 7, clause 1
https://www.cbo.gov/topics/budget/presidents-budget
https://www.senate.gov/reference/reference_index_subjects/Bu...
"The president submits a budget to Congress by the first Monday in February every year. The budget contains estimates of federal government income and spending for the upcoming fiscal year and also recommends funding levels for the federal government. Congress then must pass appropriations bills based on the president's recommendations and Congressional priorities. If Congress does not pass all appropriations measures by the start of the fiscal year (October 1), it has to enact a continuing resolution to keep the government running."
The budget gets compiled by the various executive agencies. It essentially lists their required spending needs based on the authorizing legislation they are working under. As such the budget is more akin to an audit than anything else. Congress doesn't decide how much money to spend and on what as part of the budget process. That actually comes from the authorizing legislation that is passed separately.
Of course, this is a loophole big enough to sail a cruise ship through. And the Senate takes full advantage of that loophole in practice.
That constitutional clause is also a bit quirky, because "raising Revenue" would be tax bills (a.k.a. revenue bills), not spending bills (appropriation bills). But in practice it seems to be treated as applying to both.
I do know that under Democrats and Republicans, the debt keeps rising due to politicians not being willing to make tough decisions. The "if 31 trillion is ok, then why not 50 trillion" question is blown off as a question only the economic illiterate would ask.
There seems to be no limit to what Washington will borrow and comparisons to the Weimar Republic and Zimbabwe are ignored because somehow, the United States is special and it could never happen here.
I do know that hundreds of billions of dollars are spent each year on just interest payments on the US Debt and that money could be better spent in other areas.
In fact it is not. Looking at debt/GDP ratio: https://fred.stlouisfed.org/series/GFDEGDQ188S
...the trend has indeed been broadly upwards since the 80's, but mostly due to shocks in 2009 (QE and the aftermath of the financial meltdown) and 2020 (covid). Other than those, it tends to actually be pretty flat.
And in fact has been dropping during the covid recovery, about as quickly as it ever has. I bet the news media you've chosen to believe on economics data didn't tell you that, did they?
> I do know that hundreds of billions of dollars are spent each year on just interest payments on the US Debt and that money could be better spent in other areas.
Oh good, because this is an even better FRED chart to pull out: https://fred.stlouisfed.org/series/FYOIGDA188S
In fact debt interest as percent of GDP has not been growing over time. The debt is bigger now because interests are lower now.
And even more interestingly, the debt service cost actually does show a big spike in history, during the Reagan expansion in the 80's, where the deficit was financed with much higher interest treasury bonds. And you can see all that debt decay back to baseline over the 20-30 year terms of the loans. It's history now, those debts are all repaid.
And, it worked out fine. Were the late 80's and 90's an economic disaster brought on by unsustainable spending? Did anything bad happen at all? Most people look back on that period as one of growth and prosperity.
Basically: all your intuition is wrong.
Another way of looking at the problem: generally, money is printed by banks, not by governments. The liabilities of the banking sector is precisely what we use as money. A bank is a "debt monetizer": it holds assets (often debt) on one side of the balance sheet, and balances that against money as a liability. https://nathantankus.substack.com/p/banks-as-debt-monetizers...
This property holds true for both central banks and private banks. They both print money that is balanced by assets on the other side of the balance sheet.
There are some benefits to this worldview:
- We have a unified model of banking that explains both central and private banks. "“Everyone can create money; the problem is to get it accepted“ -Hyman Minsky
- In a very real sense, all money is backed by something
If you just print money and use it outside of this framework, you essentially get cryptocurrency: https://www.crisesnotes.com/the-dangerous-brilliance-of-issu...
The FED creates money by Quantitative Easing (QE). However, this money goes to bank balance sheets and is not part of the "real" economy. Here is how it works: BigBank has a balance sheet with $100B of securities (such as treasury bills, mortgages, etc). What the FED does during QE is take these securities from BigBank in exchange for cash. So, just like that BigBank has $100B in new cash that has been "created" out of thin air.
Congress can also create new money by deficit spending.
For a much better and thorough breakdown on how this all works, here is a great reference: https://www.lynalden.com/money-printing/
Only US goverment can print dollars. Those are then sold to 'federal reserve' in bulk at price of pennies per sheet, without regard to face values.
They will sell sheets to public at face value + markup.
https://catalog.usmint.gov/paper-currency/uncut-currency
Observe how they call the money a 'note'. Like a house mortgage or car loan, the 'note' is a financial debt instrument.
since the entire world economy would implode if the US defaulted, we might as well just eliminate the debt limit and force the world to eat the penalty of letting the USD become waaaaay-too-big-to-fail
debt hawks warned of end-times if our debt ever hit $5 trillion...then $10 trillion...then $20 trillion...
if the US can survive $31 trillion in debt, I'm not sure why $50 trillion would sink it...or $80 trillion...or whatever
we're headed there anyway
Progressives are demonized as violent revolutionaries to maintain the ruse. Most progressives on Main Street just want ALL their neighbors to be accepted in the local community. That’s turned into a fear mongering meme to empower government and maintain the public-private collusion occurring between politicians and aristocracy.
There is zero evidence aristocracy is necessary to maintain civil society and prevent reality from imploding. There is a lot of evidence of aristocrats invoking “end times are here!” if their figurative identity is questioned.
If Congress doesn’t want the money borrowed, they shouldn’t authorize spending more money then was collected.
How can you be sure it can? $31T is the current value, but it has only been at this level for maybe a year, after sharp increase during COVID pandemic. It's entirely possible that this debt will bring the US down in the next couple of years - too soon to tell.
It has nothing to do with actual concern about our debt, and is entirely about pleasing republican voters who believe that the US congress doing anything is bad, and others who just want to own the libs.
This is basically the only thing that republicans have power over right now in congress, because nobody trusts house Republicans anymore because of just how goddamned crazy some of them are, and how often they go back on their word.