Amidst the irresponsible media blitz of US debt default talk is a handful of constructive, truthful information. Delving into only a portion of this available information reveals what is really going on and what could be happening if the two octogenarians in charge would finally end their two-year-long overage of spending (it is obvious who the octogenarians are, and one is late in her 8th decade if not 80 yet).
One tool that could be used immediately to address the continued paydown of US Treasury principal and interest is that of “rolling over” maturing US Treasury obligations by issuing new debt to pay off old debt. According to legal sources who have advised recent administrations of both major political parties, this type of debt paydown could even lower the amount of outstanding government debt subject to the “statutory limits” that would constitute exceeding the debt limit. This plan was established by the US Treasury back in 2011 when the last major showdown on the debt limit occurred.
Currently the limit on the amount the US government can borrow is a mind-boggling $31.4 trillion. This limit was reached this past January and since then the US Treasury has been using “extraordinary measures” to continue to pay government bills. Funds from these measures, such as using available tax revenue or borrowing from the retirement accounts of federal workers (not allowed by private employers), are said to become exhausted by about June 1st or so.
The government borrows (or issues debt) because it spends more than it takes in via tax revenue. These borrowed funds are used to pay government workers, but for numerous other critical reasons including:
Recent news features the danger of the United States defaulting on its Treasury debt. Longer story short, the US Treasury is very, very, very, very unlikely to default, and “cooler minds” would be educating the American public about why this is the case. The explanation is beyond the scope of TGIF 2 Minutes. (Please note that none of the following is a political statement or meant to be.)
Of course, there are plenty of reasons why the US finds itself, once again, in this position. The last time it was this serious was in 2011 when Barack Obama was President. Then came the coronavirus in 2019 and responses by Presidents Trump and Biden. Entitlements and social program spending, along with eventually replenishing US defense spending, became and are still beyond expensive. As The Wall Street Journal notes, “…U.S. debt held by the public is now about 100% of GDP, up from 39.2% as recently as 2008 and 77.6% in 2018” and “…The cost of financing that debt is rising fast along with interest rates, and interest on the debt will take up an increasingly large share of federal revenue. Priorities… will be squeezed.”*
The country is witnessing a high stakes political fight that will likely play out over the next five months and feature the Republicans and Democrats in the US House of Representatives negotiating and attempting to call “chicken” on who gives in first, with trillions of dollars in the offing. The primary matters at hand are the government’s overdue and needed discipline on its spending cap – and determining how much debt is manageable for the country over the short- and long-term. The next generation of Americans, among others,is who should be watching most closely.