Tuesday, May 16, 2023

Why the Debt Ceiling Doesn't Matter

Once again, Washington is grappling with its debt problem.  In actuality, while they make a great deal about the debt ceiling, in the hallowed halls of Congress, the ruling class knows that the fiscal situation in the United States is unsustainable.  Let's look at three measures which prove their fiscal incompetence.


1.) Interest owing on the current federal debt:


In the first quarter of 2023, the annualized interest owing on the federal debt hit another new record of $928.929 billion, up 80 percent from $516.098 in the third quarter of 2020 just after the mini-recession of the pandemic wound down.  Obviously, given the increase in interest rates on the federal debt since the Federal Reserve has done its best to kill the inflation that it launched during its money-printing response to the pandemic as shown here:


...this fiscal situation is unsustainable and it is just a matter of time before the annual interest payments on the debt passes the $1 trillion mark, money which does not add to economic growth.


As an aside, given that the United States is by far the biggest spender on defense when compared to other nations, it is interesting to see that spending on defense, the biggest single line item on Washington's annual budget, is now roughly the same as spending on debt interest payments:



2.) Federal spending:


The red line shows the general trend of the growth of federal spending over the period from 1970 to 2020.  The massive growth in federal spending as Washington responded to the COVID-19 pandemic during 2020 is very obvious.  Again, this fiscal situation is unsustainable.


3.) Growth in the debt ceiling:



Thanks to Statista, we can see that it doesn't matter which party is in power, the debt ceiling rapidly rises as Washington habitually spends more than it brings in as revenue.  Once again, this fiscal situation is unsustainable as we can see on this graph which shows the federal surplus/deficit situation going back to 1980: 



The United States federal debt ceiling has become a laughable concept.  Washington's ruling class loves to spend more than it brings in as revenue, a reality that will eventually become painful as Congress kicks the "debt can" further and further down the road.

The debt ceiling doesn't matter for one reason; it just becomes the new debt floor.

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