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Debt Ceiling Brinkmanship (Usa)

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from "The New Reublic": A wierd article which demonstrates how mad the whole business is...


"The debt ceiling does exactly what it sounds like it does: It caps the total amount of money the government is allowed to owe. Because the government keeps running deficits, it keeps bumping up against it, and Congress then has to increase the limit to keep the government going. Right now, the national debt stands only $400 billion short of the $14.3 trillion ceiling, which means that some time in the next few months Congress will need to vote to raise it.

It’s a safe bet that most politicians would be extremely reluctant to cast such a vote. Deficit reduction was a major component of the Republicans’ battle cry this past electoral season, and Democrats are no more likely to embrace a measure that explicitly allows for more debt. But it’s a necessary evil: Failure to raise the ceiling could lead to full-fledged U.S. default—that is, the inability to make scheduled interest payments on existing Treasury bonds and other government debts.

Recent history provides a sense of just how scary this would be. “The reason the markets calmed down [during the financial crisis] is that we took [the banks’] toxic assets and handed the financial institutions Treasurys,” says Kevin Hassett, a scholar at the American Enterprise Institute. “If we’re in a default situation, the Treasurys themselves are the toxic assets, and it’s not clear what we can hand anybody to calm them down.” Banks and countries like China would view American debt as a severe liability, and markets would be thrown into chaos. Admittedly, this scenario is unlikely, since the Treasury Department can ward off default for months by taking extreme steps, such as raiding Social Security or civil-service pensions. But even if we don’t default, a protracted failure to raise the debt ceiling risks other dire economic consequences by making it look like the United States is ungovernable and a bad place to invest."

Which is "kicking the can down the road" to nth degree. Nowhere in the article is it suggested the US should ever pay back the debt... Just raise the ceiling forever?


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  • 336 Brexit, House prices and Summer 2020

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