the debt limit is approached, extended, approached, extended...is there really a point to the exercise?
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
Finance is 100% figurative and has no 1:1 connection to consumption. We’re LARPing figurative truth of the before times to make the elders feel validated for accepting old semantics, and investment decisions we weren’t there to observe even happened; we just have to accept.
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.
This is technically possible. The treasury authorize a payment, even though it doesn’t have the money in it’s general account, then it’s up to the federal reserve to decide if it wants to approve the payment.
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.
This is being done entirely because the Republicans kind of have the house and love being obstructionist. That's the entire reason. If they also had the senate, it would be a trivially passed vote. If they held neither the house or senate, it would be a trivially passed vote.
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.
I wonder: if the US spend and then inflate the debt down to reasonable levels (in terms of buying power) they got a lot of stuff from china basically for free, right?
Why is this woman working as the head of the treasury now? I thought the whole point of the Fed being outside the control of democratically elected officials was to clearly separate the Fed from the Treasury, but i guess its all just the same people running both?
Effectively, yes. Fed is definitely a political entity and its political layer (as opposed to the civil servants/career bureaucrats) is appointed from the same circles of finance industry/DC insiders as cabinet officials (like Treasury Secretary) are. That said, Yellen never technically held both jobs at the same time. It's another revolving door issue, similar to military procurement officers stepping into defense contractor jobs, or SDNY prosecutors stepping into law practices that focus on defending clients in the same kinds of cases (sometimes exactly the same cases) that they were just prosecuting.
Can anybody suggest an educational source to understand how does this US Government debt issuance work? Specifically, I am trying to understand why Treasury don't just print more dollars, without issuing new debt? I get that it's bad for inflation, I am just trying to figure out the mechanics of it (not the policy implications), with the roles played by Treasury vs Fed. Is there any place where this is explained clearly?
One way to think about it: the world you are proposing is equivalent to one where the central bank fully monetizes all government debt. That possibility is a strict subset of the space of possible monetary policies we have today. The Fed could decide to do that, but it would have significant implications. It would push down interest rates substantially, which would (according to conventional thinking) potentially trigger inflation and incentivize various sectors of the economy to shift their portfolios towards riskier assets in an attempt to pursue greater returns. This could have a substantially destabilizing effect.
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
As a very general high-level view: the Treasury cannot print money. This is handled by the Federal Reserve (FED)
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.
Ultra high coupon bonds are the new workaround. The debt limit is on the par value or face value of the debt. If you have a ridiculously high coupon, meaning interest payment, people will pay far above the face value.
Unlike paper dollars sold to 'federal reserve' at pennies per sheet, coin dollars are sold at face value.
Since we refuse to slow down deficit spending, we can simply coin dollars to pay the bills and thus avoid interest costs on deficit spending.
Ok, this is very helpful. I would love to learn more details about the mechanics of this process. Is this process written up anywhere? Like who approves the printing, how exactly it becomes the the debt to the Government, etc...? I am mostly interested in the mechanics, who approves what and when, and not so much in monetary policy implications. Is there a book that goes over this in detail, along with M1, M2, M3 creation ...?
The debt ceiling is redundant and dangerous and should be abolished. It's a vote on whether or not to pay bills that have already been incurred.
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.
> "The Budget" as proposed by the President every year
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.
“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
Usually the President does propose a budget. I believe the proposal is more of a "suggestion" from the President that congress can take into consideration when doing the actual budgeting bills. So the person you responded to is correct. Presidents do generally propose a budget, but it should not be confused with the actual budget that goes into effect.
"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 and Accounting Act of 1921 requires the President to submit a budget request to Congress and defines how the overall budgeting process works.
Generally people have the wrong idea how congress decides to spend money.
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.
The "spending bills" are more accurately called appropriation bills, and were covered later in my post.
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.
Increasingly it feels like it has become a tool for one party to hold the other (and the country's debt rating) hostage to get what they want. I can only recall this being done by the GOP though if people have evidence of the Democrats doing it please share.
actual revenue and actual expenditures will be different than what is in the budget. Also the value of debt changes with market changes in interest rates.
Your comment is not substantive, but this situation is much more akin to putting a purchase on a credit card, and then deciding to stop making your payments when the accrued interest gets too high.
The analogy is flawed, of course, because sovereign states don't operate like private consumers, and to pretend they do only serves to fuel pithy content-less (usually partisan) hot-takes that don't serve to illuminate.
I'm not an economist, so I'll leave the "national debt is not like personal debt" arguments to others.
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.
...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.
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.
41 comments
[ 2.5 ms ] story [ 103 ms ] threadsince 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.
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.
https://www.bep.gov
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.
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.
The analogy is flawed, of course, because sovereign states don't operate like private consumers, and to pretend they do only serves to fuel pithy content-less (usually partisan) hot-takes that don't serve to illuminate.
Consider why people want to buy US-bonds but not cmer-bonds.
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.