I cannot get over the fact that the US is acting like a "less developed" country.
It's both shocking and unbelievable, and also... entirely predictable.
Shame on all ideologues in congress incapable of compromise.
It's both shocking and unbelievable, and also... entirely predictable.
Shame on all ideologues in congress incapable of compromise.
(A few other countries have some sort of debt limit, but they're generally expressed in terms of fraction of GDP, which is _somewhat_ less problematic, though may have undesirable effects in a financial crisis... Doing it in absolute terms is _obviously_ going to lead to problems, though.)
https://www.factcheck.org/2008/02/the-budget-and-deficit-und...
The most significant long-term problems they created were probably exempting rich people from Social Security taxes on more than their first $125k of income and Medicare plan D, both of which created massive time bombs as the boomers headed towards retirement. The longer we delay dealing with those, the harder it’ll be to close the gap — which is exactly what they were counting on to build support for privatization.
But debt can be fiscally sound, as anybody with a mortgage knows.
It was for efficiency:
"Between 1788 and 1917, Congress would authorize each bond issue by the United States Treasury by passing a legislative act that approved the issue and the amount.
In 1917, during World War I, Congress created the debt ceiling with the Second Liberty Bond Act of 1917, which allowed the Treasury to issue bonds and take on other debt without specific Congressional approval, as long as the total debt fell under the statutory debt ceiling" [1].
There is no original sin. We just need a law that permanently authorizes the Treasury to borrow as needed to pay for the things the Congress told it to spend on.
[1] https://en.wikipedia.org/wiki/History_of_the_United_States_d...
Biden should just print a $999T coin and make it a non-issue forever. They seem to be favoring the 14th amendment approach but that seems dubious given the current Supreme Court.
Rather than selling off real assets, the answer is for the executive to create new money themselves ("mint the coin") rather than continuing to be beholden to the Federal Reserve. As we saw with this last spate of pandemic price inflation, the Federal Reserve's technocratic mandate means they will have to adjust and take money out of circulation to compensate.
1. Executive branch mints coins
2. Coins are deposited
3. Functionally this raises the debt ceiling, albeit in a roundabout manner
4. Fed. Reserve tightens monetary policy to compensate for increased circulation of USD
5. Banks are less able to lend cash on a credit basis to private enterprise, since all banks are dependent on Fed. Reserve for cash to back such lending
If it continues long enough wouldn't this eventually mean that the only entity with any credit would be the Federal Government? I'd suspect a weird commercial futures swap market would pop up in lieu of traditional credit lines.
For (5), the ability to issue credit doesn't change. Rather the interest rates do. The current rates are still quite low. They only seem like such a shock because we've had two solid decades of artificially low rates, meaning profligate monetary creation by the Federal Reserve. But rather than being spent purposefully on societal investments, it was just handed to banks to use as they saw fit - causing the "everything bubble" we are suffering today.
I'm assuming this is a continuous loop. So over time wouldn't interest rates tend to infinity? Or maybe not, because raising interest rates at some point would be of no utility. If no one is using credit, raising rates doesn't actually change anything.
Interest rates and the ability to issue credit are mostly orthogonal concepts (interest rates do affect the real and perceived abilities of a debtor to pay back a loan, which does affect creditworthiness).
The sheer majority of "money" in our economy is actually credit/debt. Your bank account balance doesn't indicate a physical pile of money somewhere, rather it's debt the bank owes you. They in turn do things like buy US treasuries which are debt the government owes them, or loan it out as credit card balances which are debt that other consumers owe them. A dollar in your bank account contributes to your own sense of purchasing power AND (for example) the credit card user's purchasing power. Increasing interest rates makes debt less desirable to have, thus decreasing the money supply.
I don't know what you're saying about rates tending towards infinity?
Get ready for your $250 cup of coffee, and 20%+ interest rates forever if they do that.
Monetary inflation that is not spent into the economy will not result in price inflation, or asset inflation for that matter. If the coins are held by the Executive or used to pay off debt held by the Federal Reserve, the new money won't enter the economy. Where things would get "interesting" is if the coins were used to pay off privately held debt (then that money would have to find somewhere else to be parked), but that would directly affect asset prices rather than consumer prices.
I for one think it would be great if the Executive/Legislature took back some monetary creation responsibilities from the Federal Reserve. We've had massive monetary expansion over the past few decades, but due to the way the Federal Reserve creates new money, it has chiefly resulted in asset inflation (hence "line always goes up") while actually squeezing the productive economy.
The real hazard of minting too much new money that sits around is that when a spendthrift Republican gains power, they might spend it all to recreate this "debt ceiling brinkmanship" dynamic for their kayfabe of fiscal responsibility - in their customary way that the effects won't show up until a Democrat is in office.
I don't understand how it would change anything about prices. The Federal Reserve already sets the interest rates indpendent of the deficit. Congress already has the ability to adjust the budget and pass laws to change spending, or increase/reduce taxes. The CBO already gives Congress estimates for every law and it's effect on the deficit.