The debt ceiling was raised three times under Trump. The debt has gone up and up under both parties. This is pure theatrics. The debt ceiling should be abolished as that’s obviously it’s only function at this point.
What's the grand strategy behind the idea of forever spending more money than we have? Are they betting we're going to invent replicators and end scarcity? Are they just hoping to keep kicking the can down the road until they die of old age? Sooner or later the bill comes due. How utterly fucked are our grandkids?
Kind of but in another way. It's an indirect tax on cash holders. Those who have the highest percentage of their wealth in cash/checking accounts/time deposits are poor and working class people. It's an easy way to grab money without too much resistance, which you'd get if you came for the assets of the actual wealthy: Stocks, real estate, etc. Most poor folks aren't literate in economics and don't even understand exactly what's happening, they just have a vague feeling they're getting ripped off by "those up there" and they're right. But they can't fight back.
Well, strictly it does. US debt is financed predominantly in 30 year treasury notes. So... 30 years. It comes due incrementally over 30 years. All we need to do is pay the bill, and in 30 years it's paid off, just like a mortgage.
What's hilarious is that all these arguments have been made repeatedly, in the same form, and by members of both parties, for far longer than 30 years. And it's been wrong, repeatedly, every time. All the shrieking about the unsustainable Regan spending in the 80's? Meaningless. That's been paid off for decades now.
Typically mortgage payments include interest and principal, so that each payment reduces the total amount owed. Treasury bill, note and bond coupons are interest only, so at maturity the entire principal is due. Treasury debt is not incrementally paid off with each payment.
government debt is not in any way similar to individuals or families who have credit cards or college loans to pay off. for one thing, governments don't actually "die of old age":
> While a household has a finite lifespan, a government has an indefinite planning horizon. So, while a household must eventually retire its debt, a government can, in principle, refinance (or roll over) its debt indefinitely.
That’s not relevant to this discussion. Congress already authorized the spending in question. The debt limit is about whether we’ll pay the bills we already promised to pay (the sane position), or instead behave like Trump or Elon Musk stiffing their contractors (which would be very, very bad when it’s the USA government doing it).
If you want to limit spending, you have to do it at appropriations time, which is when Congress decides what to spend money on. That’s when you can sanely have the “should we spend all the money we don’t have” argument.
Do note that Reagan spent money “we didn’t have” like it was going out of style. Bill Clinton, on the other hand, left office with a surplus, promptly squandered by George W. Bush, whose hole we are still digging out of. Trump made this a lot worse, of course, because that’s all he’s capable of doing with any situation.
> If you want to limit spending, you have to do it at appropriations time, which is when Congress decides what to spend money on.
Yet, you say:
> Do note that Reagan spent money “we didn’t have” like it was going out of style.
No blaming of the Democrats in control of the House?
> Bill Clinton, on the other hand, left office with a surplus
So the Republican congress under the majority of Clinton's tenure had nothing to do with the spending?
> promptly squandered by George W. Bush
Yeah, that had nothing to do with 9/11, the dot com bust, or the Democratic congress which contributed to at least third of the debt under Bush even though they represent a quarter of Bush's term.
Our grandkids are very fucked, but by climate change, not debt. Taking on more national debt to invest in renewable energy would be more than worth it.
Also, the grand strategy is called capitalism and Keynesian economics. See, you borrow some money to invest in future economic growth. And then you keep doing that and keep growing.
Irrelevant question to the article really. The thing about the debt limit is that it doesn’t actually limit how much congress tells the executive to spend. So Congress on one hand says to the executive “you are only allowed to have this much debt” and on the other hand says “you must spend this much money on all of your programs, which will cause the treasury to surpass that debt limit”. Congress giving the executive contradictory demands is what causes the executive to have to look for work arounds to spend the money it is legally mandated to spend (every time the debt limit gets too close, the treasury has to start using increasingly complicated legislative gimmicks to keep the lights on while waiting for congress to get its ass in gear).
So…irrespective of whether you think we should have less debt, the debt limit is a pointless exercise. If congress wants the government to spend less money, congress should decrease the budget and remove laws that require spending. The debt limit just forces the executive branch to choose which way it would prefer to disobey congress.
All of your arguments assume a zero sum economy. World GDP has been growing exponentially for millenia. What's the "grand theory" behind your belief that it will suddenly stop?
I'm going to take your comment at face value and assume a good faith question. There are a couple arguments for higher federal debt levels. Federal Debt doesn't really matter the way a household's debt matters. The debt to GDP ratio isn't the same as a family's debt ratio because the government can always just print more money to pay down the debt. Will this increase inflation? Very probably but not necessarily. Is higher inflation an absolute bad thing? Also likely but not proven. Modern Monetary Policy would state that you can just increase taxes (in particular on the wealthy) to avoid inflation if you need to.
This explanation doesn’t pass the pub test without substantial qualification: we all know that governments can’t just print endless money and declare everyone wealthy. The missed detail is the impact on foreign currency exchange rates - and no country can survive without the global market.
Where does the money supply come from? How much money is allowed to be saved in bank accounts?
What happens if we build a ton of wealth, through labor, but the amount of money in circulation and saved in bank accounts doesn't increase to account for all that extra economic activity? It would cause a dollar to be worth more and more, shifting the value of a dollar.
Similarly, what happens if the government makes purchases by printing more dollars? It has the potential to make a dollar worth less, if the purchasing gets out in front of the productive capacity.
When the US government issues debt to spend money, it's doing the equivalent of printing more dollars, just a special type of dollars. When the debt is due, the government can always print more dollars. Always. There's no fixed amount of dollars, there are only the number of dollars that the US government decides that there are in circulation.
So US treasuries act just like more money supply; they are traded for dollars, saved in accounts like dollars, pass between holders just like dollars. The only thing about this debt is that by changing interest rates, the the government changes the value of currently held treasuries. When somebody has a $10k in treasury notes that yield 2%, and the fed increase interest rates to 3%, it decreases the $10k in treasuries to a smaller value. So this sort of debit instead of dollars isn't completely useless, it's gives a bit of control of the money supply in a weird way.
And since the US dollar is the international reserve currency, the preferred way to save money, these treasury notes end up not only being the methods of savings in the US, they are the methods of savings for the entire world. This gives the US enormous power the word over, gives US business enormous power, and is a massive advantage for the US.
But in addition to giving the US power across the world, by being the reserve currency, we also need to be sure that there are enough dollars out there for people to hold onto in order to represent their savings. And in reality, that means there needs to be enough treasury notes, "debt", for the everyone to hold onto and trade. Because one thing that kills a currency is not enough of it to go around, which makes it too illiquid. Which means that the US needs to do enough spending to make sure that there's enough t-notes out there.
In essence, our "debt" is actually skimming off the productivity of the rest of the world. We take their stuff, they get our dollars that we issued out of thin air, and all members of the US economy benefit.
It's incredibly important to realize that the US is not a household, not a business, the US is the currency issuer. We should not be concerned about the level of "debt" other than we are 1) concerned about the total money supply of dollars, 2) want to prevent inflation from too much spending.
"What's the grand strategy behind the idea of forever spending more money than we have? "
It's more the other way around. Government appears to spends more than it gets because people further down the spending chain don't spend everything they get.
In other words to allow people to save what they want, government has to dis-save more than it would prefer.
If we banned financial saving, the problem would go away no matter how much government spent.
The grandkids are fine. The 'bill', such that it is, will be paid automatically when the grandkids spend their inheritance from granddad. That's what a Treasury Bond, a Gilt or a JGB is - a savings asset.
As ever it pays to look at both sides of the balance sheet. For every liability there is an asset. It all has to sum to zero.
Hardly. It's just a particular mechanism to print more money that got created inadvertently . A really silly and dumb route to that, but no different in effect. That it's no different from printing more money to pay the debt is part of why it's unlikely to avoid a credit scare.
There is a reason democracy has checks and balances, the founding fathers weren't naive. You're right that it's in principle no different, yet this is a whole new level. A mechanism for unlimited spending that "got created inadvertently", as you colorfully framed it, would commonly be called a loophole. They're looking for flaws in the constitution to do what any unschooled hawker in Zimbabwe can tell you is a horrible idea. The fact that this is seriously discussed by people from the party in power would be concerning to me if I were American.
Yes, it is a loophole, but just in one law, not in the constitution. Congress delegated to the Treasury the right to mint coins of any denomination, even if the intent was different.
I must admit that the separation of powers issue had not quite occurred to me, since the entire scheme is self-defeating and would scare holders of the US debt anyway. People would be (and are right now!) worrying a lot more about a credit rating downgrade or a default than a separation of powers concern.
> The fact that this is seriously discussed by people from the party in power would be concerning to me if I were American
Both parties have radical members. The whole reason the debt ceiling "crisis" keeps coming and going is because of a Congressional Republican faction, and the faction members are far more numerous than the number of Congressional Democrats seriously discussing use of the coin. The latter could probably be counted on one hand, if not one finger.
The coin always comes up because the topic gets amazing engagement for media outlets, and generally gets everybody excited for one reason or another--e.g. the sheer absurdity, or for the literati the technical minutiae. But it would never happen. More likely would be a default, but that's also not very probable as it only takes a handful of moderate Republicans (5 this go-round) to switch sides for a budget vote. That's why the markets don't care
This charade only happens so Republicans can show their base that they're serious about fiscal conservatism, and more specifically it's part of a very long-term strategy to undermine public support for Social Security. And any Democrats advocating for the coin are likewise doing so only to signal to their base (or readers) that they're serious about putting a stop to Republican obstructionism, which is a major topic and source of frustration within Democratic circles--impotence in the face of minority obstructionism.
Not in this case — the main characters in Idiocracy were well-intending, just stupid. I don’t think that’s the case with the folks playing chicken with the global economy over paying debts our government has already accrued.
Personally, I think that this is a political problem, and a political solution would be the best way to resolve it.
There are various legal gimmicks, like the trillion dollar coins or premium bonds (discussed in the article), that have been proposed that might work temporarily. However, I'd expect them to be either struck down by the courts, or banned in a future must-pass government funding or omnibus bill. I don't think the uncertainty created by using one of these gimmicks is worth the benefit of delaying a political solution.
I'm not an expert in this topic, so I'm keeping my mind open to other ideas.
The coin has a deposit problem. There is nothing that says the Fed has to create deposits 1-for-1. If you have an unbalanced budget then Treasury dollars deposited at the Fed become like Canadian dollars deposited at the Fed. They start to attract a discount. Since that's how monetary policy is alleged to work (Treasury has to offer the world a discount to get them to part with their 'scarce' money), an antagonistic Fed (or Supreme Court) could easily go down that road.
The other alternative interpretation is that Congress has ordered the Fed to pay out a certain amount from the TGA, ordered the IRS to collect a certain amount into the TGA and ordered the Treasury to drain reserves into the TGA to a set amount. Those orders don't add up, therefore the result will be a carried forward balancing item at the Fed.
In other words any ability the Fed has to say 'no' to a Treasury payment order either doesn't exist in law, or has been repealed under the doctrine of implied repeal. It also avoids the discount argument, and the issued argument.
That concept blows the mind of those who still think money is about shiny coins in bags, rather than a function of accounting entries in a banking system.
32 comments
[ 5.3 ms ] story [ 91.9 ms ] threadIt's people saving money that causes the 'problem' in the first place. If they didn't save there wouldn't be a deficit.
Deficit = excess saving as a matter of accounting identity.
We have an 'unbalanced' budget precisely to allow people to save what they want.
No it doesn't. The whole world runs on debt, it's not a terribly big deal.
What's hilarious is that all these arguments have been made repeatedly, in the same form, and by members of both parties, for far longer than 30 years. And it's been wrong, repeatedly, every time. All the shrieking about the unsustainable Regan spending in the 80's? Meaningless. That's been paid off for decades now.
Typically mortgage payments include interest and principal, so that each payment reduces the total amount owed. Treasury bill, note and bond coupons are interest only, so at maturity the entire principal is due. Treasury debt is not incrementally paid off with each payment.
> While a household has a finite lifespan, a government has an indefinite planning horizon. So, while a household must eventually retire its debt, a government can, in principle, refinance (or roll over) its debt indefinitely.
https://www.stlouisfed.org/publications/regional-economist/f...
https://en.wikipedia.org/wiki/Government-Household_analogy
If you want to limit spending, you have to do it at appropriations time, which is when Congress decides what to spend money on. That’s when you can sanely have the “should we spend all the money we don’t have” argument.
Do note that Reagan spent money “we didn’t have” like it was going out of style. Bill Clinton, on the other hand, left office with a surplus, promptly squandered by George W. Bush, whose hole we are still digging out of. Trump made this a lot worse, of course, because that’s all he’s capable of doing with any situation.
Yet, you say:
> Do note that Reagan spent money “we didn’t have” like it was going out of style.
No blaming of the Democrats in control of the House?
> Bill Clinton, on the other hand, left office with a surplus
So the Republican congress under the majority of Clinton's tenure had nothing to do with the spending?
> promptly squandered by George W. Bush
Yeah, that had nothing to do with 9/11, the dot com bust, or the Democratic congress which contributed to at least third of the debt under Bush even though they represent a quarter of Bush's term.
Also, the grand strategy is called capitalism and Keynesian economics. See, you borrow some money to invest in future economic growth. And then you keep doing that and keep growing.
So…irrespective of whether you think we should have less debt, the debt limit is a pointless exercise. If congress wants the government to spend less money, congress should decrease the budget and remove laws that require spending. The debt limit just forces the executive branch to choose which way it would prefer to disobey congress.
What happens if we build a ton of wealth, through labor, but the amount of money in circulation and saved in bank accounts doesn't increase to account for all that extra economic activity? It would cause a dollar to be worth more and more, shifting the value of a dollar.
Similarly, what happens if the government makes purchases by printing more dollars? It has the potential to make a dollar worth less, if the purchasing gets out in front of the productive capacity.
When the US government issues debt to spend money, it's doing the equivalent of printing more dollars, just a special type of dollars. When the debt is due, the government can always print more dollars. Always. There's no fixed amount of dollars, there are only the number of dollars that the US government decides that there are in circulation.
So US treasuries act just like more money supply; they are traded for dollars, saved in accounts like dollars, pass between holders just like dollars. The only thing about this debt is that by changing interest rates, the the government changes the value of currently held treasuries. When somebody has a $10k in treasury notes that yield 2%, and the fed increase interest rates to 3%, it decreases the $10k in treasuries to a smaller value. So this sort of debit instead of dollars isn't completely useless, it's gives a bit of control of the money supply in a weird way.
And since the US dollar is the international reserve currency, the preferred way to save money, these treasury notes end up not only being the methods of savings in the US, they are the methods of savings for the entire world. This gives the US enormous power the word over, gives US business enormous power, and is a massive advantage for the US.
But in addition to giving the US power across the world, by being the reserve currency, we also need to be sure that there are enough dollars out there for people to hold onto in order to represent their savings. And in reality, that means there needs to be enough treasury notes, "debt", for the everyone to hold onto and trade. Because one thing that kills a currency is not enough of it to go around, which makes it too illiquid. Which means that the US needs to do enough spending to make sure that there's enough t-notes out there.
In essence, our "debt" is actually skimming off the productivity of the rest of the world. We take their stuff, they get our dollars that we issued out of thin air, and all members of the US economy benefit.
It's incredibly important to realize that the US is not a household, not a business, the US is the currency issuer. We should not be concerned about the level of "debt" other than we are 1) concerned about the total money supply of dollars, 2) want to prevent inflation from too much spending.
It's more the other way around. Government appears to spends more than it gets because people further down the spending chain don't spend everything they get.
In other words to allow people to save what they want, government has to dis-save more than it would prefer.
If we banned financial saving, the problem would go away no matter how much government spent.
The grandkids are fine. The 'bill', such that it is, will be paid automatically when the grandkids spend their inheritance from granddad. That's what a Treasury Bond, a Gilt or a JGB is - a savings asset.
As ever it pays to look at both sides of the balance sheet. For every liability there is an asset. It all has to sum to zero.
All I can say is wow. Idiocracy was a visionary documentary.
I must admit that the separation of powers issue had not quite occurred to me, since the entire scheme is self-defeating and would scare holders of the US debt anyway. People would be (and are right now!) worrying a lot more about a credit rating downgrade or a default than a separation of powers concern.
Both parties have radical members. The whole reason the debt ceiling "crisis" keeps coming and going is because of a Congressional Republican faction, and the faction members are far more numerous than the number of Congressional Democrats seriously discussing use of the coin. The latter could probably be counted on one hand, if not one finger.
The coin always comes up because the topic gets amazing engagement for media outlets, and generally gets everybody excited for one reason or another--e.g. the sheer absurdity, or for the literati the technical minutiae. But it would never happen. More likely would be a default, but that's also not very probable as it only takes a handful of moderate Republicans (5 this go-round) to switch sides for a budget vote. That's why the markets don't care
This charade only happens so Republicans can show their base that they're serious about fiscal conservatism, and more specifically it's part of a very long-term strategy to undermine public support for Social Security. And any Democrats advocating for the coin are likewise doing so only to signal to their base (or readers) that they're serious about putting a stop to Republican obstructionism, which is a major topic and source of frustration within Democratic circles--impotence in the face of minority obstructionism.
There are various legal gimmicks, like the trillion dollar coins or premium bonds (discussed in the article), that have been proposed that might work temporarily. However, I'd expect them to be either struck down by the courts, or banned in a future must-pass government funding or omnibus bill. I don't think the uncertainty created by using one of these gimmicks is worth the benefit of delaying a political solution.
I'm not an expert in this topic, so I'm keeping my mind open to other ideas.
The other alternative interpretation is that Congress has ordered the Fed to pay out a certain amount from the TGA, ordered the IRS to collect a certain amount into the TGA and ordered the Treasury to drain reserves into the TGA to a set amount. Those orders don't add up, therefore the result will be a carried forward balancing item at the Fed.
In other words any ability the Fed has to say 'no' to a Treasury payment order either doesn't exist in law, or has been repealed under the doctrine of implied repeal. It also avoids the discount argument, and the issued argument.
That concept blows the mind of those who still think money is about shiny coins in bags, rather than a function of accounting entries in a banking system.