Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Brace Yourself for Another “Debt Ceiling” Fight

  by    0   1

Here we go again.

The clock is ticking down to another US debt ceiling battle.

The Congressional Budget Office projects Uncle Sam will run out of money this fall, likely in October or November. “If that occurred, the government would be unable to pay its obligations fully, and it would delay making payments for its activities, default on its debt obligations, or both,” the CBO said in a statement.

In 2019, Congress suspended the debt limit for two years. That suspension ends on July 31.

Congress imposed the first debt ceiling in 1917. The Second Liberty Bond Act capped debt at $11.5 billion. This was supposed to put some kind of restraint on government borrowing. Of course, it didn’t. Every time the debt approaches the ceiling, Congress simply raises it. Between 1962 and 2011, lawmakers jacked up the debt “limit” 74 times, according to the Congressional Research Service.

In 2013, Congress came up with a new trick. Instead of raising the debt ceiling, it just suspended it. Congress set the last actual debt limit in 2014 with a built-in “auto-adjust.” The auto-adjust ended in March 2015 with the debt ceiling set at $18.1 trillion. Since then, Congress has suspended the debt ceiling three times.

As of July 20, the national debt stood at $28.49 trillion.

When the current debt ceiling suspension ends on July 31, the US government will no longer be able to borrow money. According to the CBO, it will be able to limp along until this fall using “extraordinary measures.” According to Reuters, these range from halting the issuance of special securities to state and local governments to suspending the daily reinvestment of Treasury securities held by a government employee retirement fund and the Treasury’s Exchange Stabilization Fund.

It’s not completely clear how long the government can get by with accounting gimmicks. The CBO said it will depend on actual revenue collection and government spending, which can differ significantly from projections.

Given that the debt ceiling has never meaningfully restrained borrowing and spending, why doesn’t Congress just scrap it altogether?

I think there are two reasons.

First, doing away with the debt ceiling would expose America’s fiscal irresponsibility to the world. We all know the federal government has a spending problem. But the debt ceiling creates the illusion of responsibility. It’s like a magic trick. We all know it’s not really magic. It’s an illusion created by the magician. But we like to believe it’s magic. It makes us feel good. The debt ceiling is an illusion that allows Americans to feel like their “representatives” are acting responsibly.

Second, the debt ceiling is ready-made for political theater. And there’s nothing politicians love more than political theater.

Senate Minority Leader Mitch McConnell has already indicated that the Republicans aren’t going to vote for a debt ceiling increase because of the Democrats’ wild spending spree that he called a “free-for-all for taxes and spending.”

“I can’t imagine there will be a single Republican voting to raise the debt ceiling after what we’ve been experiencing,” McConnell said.

It’s also a nice tool Republicans can use to get what they want out of the infrastructure deal Congress is currently haggling over.

Of course, this is all rank hypocrisy. The Republicans borrowed and spent like drunken sailors during the Trump years and they approved the last debt ceiling suspension. Even today, Republicans aren’t opposing the infrastructure bill. They just want it to be their kind of infrastructure bill.

Senate Majority Leader Chuck Schumer called McConnell’s remarks “shameless, cynical and totally political.” Because we all know the Democrats are just trying to do what’s best for America. No political motivation there at all!

Failure to raise the debt limit would have “catastrophic economic consequences,” as Treasury Secretary Janet Yellen put it.

It would be utterly unprecedented in American history for the United States government to default on its legal obligations.”

Yellen’s not wrong. And this is exactly why Congress will raise the debt ceiling – or simply kick the can down the road by suspending it again.

In the meantime, brace yourself for hot political rhetoric and a lot of finger-pointing across the political aisle. We may even get another mythical government shutdown. But trust me, they won’t shut down any of the important things. The NSA will keep spying on you. The IRS will continue to collect taxes from you. The wars will rage on. And members of Congress will continue to collect their paychecks. There’s always money available for the things the government really wants to do.

The whole debt ceiling debate is nothing but political gamesmanship. So, grab a chair. Pop some popcorn. And enjoy the show.

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Will the Fed Stay in the Ring With Inflation? Or Is the Tough Talk Just Hot Air?

Cooling Consumer Price Index data did not cool the hot rhetoric coming from some Federal Reserve members. The question is whether this is a bunch of hot air or do these central bankers actually have the fortitude to move forward with rate hikes in the face of a sinking economy?

READ MORE →

CPI Cools Modestly; How Will the Fed Play This?

As expected, the Consumer Price index cooled a bit thanks to falling gasoline prices. The question is will this give the Federal Reserve the excuse it needs bow out of the inflation fight? The Consumer Price Index for July was up 8.5% year-on-year. That was down from June’s 9.1% print and slightly below the 8.7% […]

READ MORE →

Peter Schiff Damn the Recession! It’s Rate Hikes Ahead!

After the second straight negative GDP print in Q2, the markets began anticipating that the Federal Reserve would pivot away from its monetary tightening. But a few choice words from some Fed members this week caused thoughts of a pivot to pivot. As Peter Schiff put it in his podcast, it appears to be damn […]

READ MORE →

Is the Federal Reserve at the End of Its Rope?

The Federal Reserve delivered another 75 basis point interest rate hike at its July FOMC meeting. This pushes the federal funds rate over the 2% threshold to between 2.25% and 2.5%. The mainstream media emphasized the size of the hike. One headline called it “a second super-sized hike,” with many other mainstream pundits noting that […]

READ MORE →

Taking Gaslighting to New Heights the White House Changes the Definition of “Recession”

You don’t have to worry about that recession anymore. The White House fixed it. And by “fixed it” I mean it just changed the commonly held definition of a recession.

READ MORE →

About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
View all posts by

Comments are closed.

Call Now