…OK, folks, let’s get some popcorn and watch “The Debt Ceiling Farce 2021” as it unfolds! Everyone knows how this farce will end. Since 1960, the farce played 78 times. Each time, after everyone got through extorting concessions from the other side, Congress either raised the debt ceiling, extended it, suspended it, or changed the definition of “debt.” That’s how it ends.
…During the debt-ceiling farce, the Treasury Department is allowed to use certain “extraordinary means” – more on those in a moment – to keep the government from defaulting. After the debt ceiling is lifted, new debt gets issued and those entities are made whole. In the end, everything gets caught up and nothing changes.
The suspense doesn’t lie in how it ends, because we know that, but how long they drag it out, and how close “we” get to the out-of-money day and, this time around, the out-of-money-day is in October or November, according to estimates by the Congressional Budget Office.
…It’s a farce because Congress told the Administration to spend this money but then doesn’t allow the Administration to raise the money via debt sales to spend this money as Congress had told it to. It’s just nuts, and foreigners scratch their heads every time, and so do we, but that’s how the system works.
The one thing the debt ceiling never ever does is reduce deficit spending. It just temporarily limits borrowing until default moves into view, and then the floodgates are opened again.
Were Congress to fail to extend the debt ceiling, the U.S. government would not be able to pay its bills and would default causing financial markets around the world to crash, in turn causing every member of Congress to lose half or more of their assets in no time – and that’s exactly why this will never happen.
As of August 1, 2021, the gross national debt outstanding on July 31 became the debt ceiling, $28.43 trillion, and that’s where the debt now sits. The U.S. government cannot add to it, but it can roll over its maturing debts.
On August 2, Yellen spelled out in her letter to Congress the first “extraordinary measures,” as they’re called, she will take to keep the U.S. from defaulting, as authorized by law – initially raiding the contributions made by members of three big federal retirement systems: The Civil Service Retirement and Disability Fund, The Postal Service Retiree Health Benefits Fund and the Government Securities Investment Fund (G Fund) of the Thrift Savings Fund that are part of the Federal Employees’ Retirement System, and when that has reached the limits, Yellen will inform Congress of other “extraordinary measures” she will take.
The government has $390 billion in its TGA, and it can take some “extraordinary measures” but it is burning a huge amount of money every day, and at some point, it needs to issue new debt, or it’s going to default….If the TGA account gets drawn down…close to zero before Congress votes to lift the debt ceiling, a 10,000-point drop by the Dow will motivate Congress to do anything, even lift the debt ceiling, after which every entity that the government has wrung out will be made whole.
Editor’s Note: The above version of the original article by Wolf Richter, has been edited ([ ]) and abridged (…) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.
Related Articles from the munKNEE Vault
The debt ceiling is of course a total farce. Why? Because it has been raised 95 times since 1940 and 14 times in this century. As a result, there is now a clear disconnect between the credit expansion and the lagging gold price which will soon be rectified as gold not only catches up with the debt expansion – but overtakes it.
The debate in Washington over when and how to increase the debt limit is less than 100% accurate. Here are some myths about the debt ceiling and the debate about raising it.
The rise of the national debt and the gold price are intertwined and the gold price has fallen behind. A huge catch-up may be on the horizon given issues over the debt limit and [with] the Fed and the President potentially on a collision course.
Many novice observers may wonder why we have a debt ceiling at all when our government has never shown the slightest inclination to respect its prior self-imposed limits [and, as such, why all the] seeming urgency to Congressional negotiations to raise the debt ceiling. [Let me explain in no uncertain terms.] Words: 1073
America was once the world’s model democracy. Now it’s a global laughingstock with a government that can’t keep the lights on and is threatening to renege on its debts. How did this happen?
Going over the debt ceiling would mean the US government legally can’t pay its bills and would default on the national debt. This would be catastrophic in ways that would make Lehman Bros look like a walk in the park.
Out of control spending by a government is always the cause of hyperinflation. The debt ceiling had been the last remaining roadblock to unlimited federal government spending. By suspending the debt ceiling, the U.S. government has given itself a blank cheque, taking one giant leap down the road leading to the hyperinflation of the US dollar. Words: 632
The United States debt limit is explained in this 3:09 satirical video which takes a look at the national debt from a family perspective. Very amusing – very insightful – very troubling.
The “debt ceiling” has replaced the “fiscal cliff” as the new crisis of the month. The gargantuan debt of the U.S. which – as of this writing – stands at an astounding $16,450,981,484,618 is now slightly above our current national debt ceiling of $16.394 trillion and growing. Let’s take a closer look at what the debt ceiling is and why it is important. Words: 1020
Since 1962 Congress has voted to raise the debt ceiling 75 times without a single reduction so, practically speaking, a ceiling that is raised automatically is no ceiling at all so why not dispense with the pretense of a debt “ceiling”?
A Few Last Words:
- Click the “Like” button at the top of the page if you found this article a worthwhile read as this will help us build a bigger audience.
- Comment below if you want to share your opinion or perspective with other readers and possibly exchange views with them.
- Register to receive our free Market Intelligence Report newsletter (sample here) in the top right hand corner of this page.
- Join us on Facebook to be automatically advised of the latest articles posted and to comment on any of them.