Some Thoughts On The Debt Ceiling

As I commence writing this article, we are awaiting the Fed’s announcement on interest rates. I am among the many who anticipate a .25% increase. That is not only unnecessary but injurious to the economy. The Fed seems committed to raising rates until (and hopefully not beyond) the point that it puts the economy into a recession. But that’s only a small part of what I want to cover today; the looming debt ceiling crisis is my main thrust.

This is to a degree this is another deja vu all over again (you gotta love the late Yogi Berra!) article. I’m sorry but I have to rechew some of my debt ceiling cabbage; I promise to be as brief as possible in doing so. The debt ceiling creates exactly zero spending. It’s kind of the opposite in that it pays for previously authorized spending. It’s more like making your rent or auto payment with borrowed money.

The United States has good credit because it pays its bills; not that different than from how you personally establish and maintain good credit. The federal government doesn’t have sufficient income (read: tax revenue – and I have thoughts on that which I will save for another day) to pay its obligations so it must borrow money which people (mostly Americans) are willing to lend it at extremely attractive rates. Only once in American history did we come to the brink of default (under the Tea Party’s pressure – economic ignorance is dangerous) and our credit rating was lowered. As with you, the lower the credit rating the higher the interest rate lenders demand.

Despite bluster from many the only real issue is the House Republicans. I feel sans them a deal would be worked out shortly and the debt ceiling would be raised. As a quick aside, the real solution would be to simply eliminate the debt ceiling all together. It serves no useful purpose and has proven to be harmful. Only one other nation that I am aware of has a debt ceiling. That is Denmark and they never use it as a political football. Poland has a constitutional provision that some liken to a debt ceiling but is Poland’s economy any match for America’s?

I must admit I got much of this from South Carolina Democrat Jim Clyburn, but here is my hope/guess on how it will be resolved. Speaker Kevin McCarthy is believing his own malarkey in that he thinks the 217-215 throw away bill he got passed in the House that is woefully short on specifics gives him power and a negotiating position. In reality he can’t get enough House votes to pass anything that the Senate will also pass and President Biden will sign. He’s not even close.

I’m hoping that Senate leaders Chuck Schumer and Mitch McConnell get together and come up with an agreement and a bill that they can get through the Senate. Unlike McCarthy, these two together can get anything passed in their chamber. House Minority Leader Hakeem Jeffries is already working on a discharge petition to get around the anticipated Republican House leadership obstruction that would then enable him to force a House floor vote on the Senate passed measure for which he would already have the necessary votes.

Some are making the discharge petition sound like an invention. In reality it has existed for decades if not longer. It would require 218 House members to sign on. By today’s numbers that would mean Jeffries would have to hold his entire caucus together (something he has time and again been able to do) plus add five Republicans. I hope that when it comes to the full faith and credit of the United States there are more than four patriotic, true conservative Republicans in the House.

That’s basically how I see this one ending. I hope I’m correct and I hope it happens in time. Remember the only time that America’s credit rating got lowered was before a default. When America’s credit rating goes down, your borrowing and tax costs go up.

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