US Debt Ceiling

[jennyjj01]

Without going into the politics of 'Why', We need to keep a weather eye on the 'what if' The US government defaults on it's debt. (in a few weeks time)

(Open in incognito window to avoid paywall)
https://www.washingtonpost.com/business ... ult-means/

Roughly every 6 months, the US drives itself to the edge of an existential financial melt down. It's a standoff between the branches of government. So, far default has been avoided and debt has been kicked down the road again and again. Currently the national debt is $31 Trillion or roughly $100,000 PER US CITIZEN
https://en.wikipedia.org/wiki/National_ ... ted_States

UK National debt per capita is about a third of that.

What if..... What if this time or the next time is different and the Debt ceiling default happens?

Total meltdown of the US markets and economy would make the Great Depression look like a picnic where you forgot the Branston.

If it can happen, it will happen. Only the 'when' is in question.

[Frnc]

Yeah, I've heard of this. They often come close to it. It's been used as an excuse for austerity. It's down to congress to agree to raise the ceiling.

[jennyjj01]

Yeah, I've heard of this. They often come close to it. It's been used as an excuse for austerity. It's down to congress to agree to raise the ceiling.

Yes. Steeped in US internal politics, but we don't need to go there.
Just be aware that the US engages in this ritual suicidal stand-off at regular and almost clockwork timescales.

It's a rather odd scenario, where the two sides (3?) have to agree on how stupidly high to push the debt. The debt itself is insane and surely unsustainable, but both sides need it and are disinclined to repay it. The arguing is usually combined with unrelated deadly blackmail where odd congressmen and senators use their swing votes to demand whatever unrelated hobby horse they want. https://www.cnbc.com/2023/03/10/debt-ce ... talks.html
Neither side wants to be blamed for the default

[jennyjj01]

Without going into the politics of 'Why', We need to keep a weather eye on the 'what if' The US government defaults on it's debt. (in a few weeks time)

https://en.wikipedia.org/wiki/National_ ... ted_States

Total meltdown of the US markets and economy would make the Great Depression look like a picnic where you forgot the Branston.

tick tock....

The date at which default (financial armageddon) would occur can't be known exactly, but it's probably some date in the first half of June, if it happens.*

It's barely on our radar. Because it's so insanely unthinkable, it's being ignored, this side of the pond, but it would affect us so very much.

So many ticking time bombs in the world lately: But as Jansman might say, these are 'big picture' events outside of our control. Well, to that, i say...... I don't know WHICH S Will Hit The Fan, first...... But it's time to don the Sowester and bolster our financial disaster plans.

Please let me be wrong again.

[Frnc]

Without going into the politics of 'Why', We need to keep a weather eye on the 'what if' The US government defaults on it's debt. (in a few weeks time)

https://en.wikipedia.org/wiki/National_ ... ted_States

Total meltdown of the US markets and economy would make the Great Depression look like a picnic where you forgot the Branston.

tick tock....

The date at which default (financial armageddon) would occur can't be known exactly, but it's probably some date in the first half of June, if it happens.*

It's barely on our radar. Because it's so insanely unthinkable, it's being ignored, this side of the pond, but it would affect us so very much.

So many ticking time bombs in the world lately: But as Jansman might say, these are 'big picture' events outside of our control. Well, to that, i say...... I don't know WHICH S Will Hit The Fan, first...... But it's time to don the Sowester and bolster our financial disaster plans.

Please let me be wrong again.

As I understand it, if it happens, it will be self inflicted by Congress. All they have to do to avoid it is agree to increase the debt enough to cover the government's expenses. So presumably it's fairly unlikely. If they do cause it, they will get the blame for it. Maybe I'm missing something, but it all sound like media hype to me. Maybe I'm underestimating the risk a bit, it could happen and the conequences could be bad, it just sounds a bit unlikely.

US Treasury paper on the topic here
https://home.treasury.gov/system/files/ ... ANSHIP.pdf

Wikipedia
https://en.wikipedia.org/wiki/United_St ... bt_ceiling
"In 2011, the U.S. reached a crisis point of near default on public debt. The delay in raising the debt ceiling resulted in the first downgrade in the United States credit rating, a sharp drop in the stock market, and an increase in borrowing costs. Congress raised the debt limit with the Budget Control Act of 2011, which added to the fiscal cliff when the new ceiling was reached on December 31, 2012. "

There is a thing which I think is different, where every year the US government might have to close some departments down for a while due to running out of money.

"What is a government shutdown?"

"Many federal government agencies rely on annual funding approved by Congress.

Every year, these agencies submit their requests, which Congress must pass, and the President must sign budget legislation for the next fiscal year.

If agreement is not reached by the start of the fiscal year on 1 October, then two things may happen: one, they agree on temporary funding based on the previous year's requests through a so-called continuing resolution, with the assumption that this will end as soon as the annual budget is agreed; two, where even this is impossible there is a shutdown where all non-essential discretionary functions are discontinued."
https://www.bbc.co.uk/news/world-us-canada-46927916

"President Joe Biden has signed into law a temporary measure to keep the government funded until early December and avoid yet another federal shutdown.

Congress narrowly passed the bill hours before funding lapsed, which would have forced federal museums, national parks and safety programmes to close."
https://www.bbc.co.uk/news/world-us-canada-58753183

[jennyjj01]

Without going into the politics of 'Why', We need to keep a weather eye on the 'what if' The US government defaults on it's debt. (in a few weeks time)

https://en.wikipedia.org/wiki/National_ ... ted_States

tick tock....

The date at which default (financial armageddon) would occur can't be known exactly, but it's probably some date in the first half of June, if it happens.*

It's barely on our radar. Because it's so insanely unthinkable, it's being ignored, this side of the pond, but it would affect us so very much.

As I understand it, if it happens, it will be self inflicted by Congress. All they have to do to avoid it is agree to increase the debt enough to cover the government's expenses. ... it just sounds a bit unlikely.

I'm not saying I understand it fully, so maybe the hype is getting me in a panic.
Yes. It just needs the Republican held Congress to agree with Democrat Biden to borrow more money to pay some interest on the massive debts racked up by previous governments of all flavours. There was never any intention by anyone of actually paying off any of the capital owed.*
But we have the opportunity for individuals and little cliques to make impossible demands while refusing to agree. And those demands are stacking up, putting at risk cuts to all sorts of government spending from Parks and Recreation, Food stamp programs, Medicaid, to Arms for Ukraine. Some cliques seem to be ready to see the whole US economy collapse just to 'stick it to' the other side.
Yes. it would be National suicide, but they still take the negotiations to the brink. Much like that non-pc hostage scene in Blazing saddles.
This time, I think the personalities and cliques in play are going to step off the precipice, just to see what happens.

Anyhow, here's a BBC article that looks at the situation from the non-preparedness angle of US folk that rely on the benefits cheques that might not arrive: Pensioners and Benefits recipients that are NOT prepared. Many of those folk are blissfully unaware of the risk. We should observe their fate as a wake up call.

"But asked if they had taken any precautions in case the US defaults and their Social Security benefits do not arrive, the seniors seated around the plastic table responded with a sea of blank looks.

"That will never happen," declared 82-year-old Norman Manning. "It would be disastrous."

Ah. such touching faith in the state.

*The underlying crisis is the absurdity that the US has already gone way past the point of no return on its debts and is kicking the can down the road. By analogy it's like two partners in a marriage arguing whether to let the mortgage go unpaid or to borrow more on the mortgage just to pay the minimum on next month's interest. One day, whatever the couple agree might find the mortgage lender unwilling to lend more and calling in the collateral. Everybody loses in that case. The whole US financial system seems to be comprised of smoke and mirrors and this situation briefly exposes the trick.

[Frnc]

The UK isn't much different:

Government debt as % of GDP
US gross 120, net 100
UK gross 102 net 85

Japan is way more gross 261 net 168
Greece 177 gross
Venezuela 157 gross
Italy 144 gross
Singapore 133 gross
Sri Lanka 118 gross - less than USA
India 83 gross
China 77 gross
Russia 19 gross


In the last 70 years UK governments have increased their debt by £1,782 billion and repaid just £38 billion, i.e. 2%.

[jennyjj01]

The UK isn't much different:

Government debt as % of GDP
US gross 120, net 100
UK gross 102 net 85
In the last 70 years UK governments have increased their debt by £1,782 billion and repaid just £38 billion, i.e. 2%.

I realise that many Nations are in the same sort of debt, but I'd estimated the UK debt per capita around a third of that of the US.
But here with current US debt ceiling legislation and current political brinkmanship, there is the real chance of a very hard landing. If the US sneezes, the Western World catches a cold. Stark factoid. "nearly half the population relies on money from the government to help make ends meet" with god knows how many living cheque to cheque.

[Frnc]

Apparently only two countries in the world have a debt ceiling - Denmark and the USA. Denmark's is set so high that passing it is a formailty.
Things you learn on twitter.

Stephanie Kelton
@StephanieKelton
Author of NYT Bestseller http://thedeficitmyth.com Professor @stonybrooku
Co-host Best New Ideas in Money podcast 🎙


A reminder of just how stupid we are.

“[Denmark’s] limit is set so high that it is essentially a formality and will never be crossed.”