Debt ceiling drama

The U.S. is again in a situation where the debt ceiling must be increased to avoid a government shutdown and a debt default. It has happened almost 80 times through the years and each time the politicians have decided to increase the debt limit in order to be able to spend more. This time, given the republicans slim majority in the house of representatives, there have been ongoing negotiations between Biden and house speaker Kevin McCarthy. 

Both camps are declaring victory daily, even though an agreement has not been reached yet and it will also need to be approved by the senate. The republicans feel that McCarthy has done a good job with a weak hand with strict spending caps for 2024, a green light on new energy permitting, no student-loan bailouts, reinstituting work requirements for welfare, a recession of some $50 billion of unspent Covid funds and new limits on Biden’s regulations. However, more conservative republicans are saying that this is not enough and are in particular upset about Biden’s $80 billion extravaganza to employ an additional 87,000 IRS agents to focus on auditing. Some more left-leaning democrats are also unhappy with the work requirements for welfare. 

The situation related to increasing debt is still concerning. After all, the Biden administration increased the debt by around $5 trillion when they held all the levers of power in 2021 and 2022, causing high inflation and a debt around $31 trillion. That any party should see the deal and a passing of a higher debt ceiling should barely been seen as a victory. On the contrary, there is something fundamentally wrong when the government spends more money than its income year in and year out. And it is also odd to understand why the republicans are pleased as the agreement means the highest debt ceiling increase in history, adding $4 trillion to the existing $31 trillion in national debt. 

The fundamental thought from the republican side is to create economic growth while minimizing inflationary consequences of reckless spending. The democrats seem content with high spending and want a short-term solution with a deal in order to keep spending. The deal would suspend the national debt limit through 2025 to avoid federal default. 

The agreement and the content voices from both parties shows a fundamental flaw with the political establishment and with the American society. More consumption and credit-card like behavior are being celebrated instead of turning the problem on its head and trying to resolve the underlying problems. Less consumption and no debt should be celebrated. A frugal living within your means and income should be the goal, but nobody or very few have this objective. To always spend more than your income and trying to fix the situation short-term with more credit cards and higher debt illustrates the thinking of Americans in general. Instead, there should be a focus on not spending more than the income and if that does not work out, then spending must be decreased or taxes increased. It is a sad situation and both parties have shown that they don’t understand fundamental economics. There are frankly no victories to celebrate.  

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