U.S. Debt Ceiling Crisis Is Here Again, and the Stakes Couldn’t Be Higher
The déjà vu of yet another United States debt ceiling crisis is upon us. The last time it happened, America opted to suspend reality rather than deal with it. That happened in November 2015, when then-president Barack Obama signed a budget deal that included debt limit suspension. But now, the problem is coming into focus once more. If nothing is done, America will enter into technical default sometime in November. That’s something no equity investor or strong-dollar proponent would enjoy.
So what is “Debt Ceiling Crisis 2017” all about anyway? We’ve heard about the U.S. debt crisis in prior years, but have paid little attention to it. There was always an underlying assumption that a deal would get done. I mean, America’s leaders would never let the country drift into default… would they? Surely, there’s too much at stake to let that happen. These are reasonable assumptions, on the face of it.
But this type of complacency could be quite dangerous this time around. With President Donald Trump leading the charge, anything could happen. This speaks less about Trump’s political experience than it does about his political opponents. Politicians on both sides of the aisle are clearly doing his administration no favors. Obstructionism and backstabbing are the norm rather than the exception. Would it be shocking to anyone if the entire Democratic caucus (plus several Republicans) try to use a debt ceiling crisis to torpedo Trump’s presidency? The animosity runs that deep.
Political maneuvering aside, if we look at what has actually happened in the last six months, nothing but gridlock has emanated from Capitol Hill. Tax cuts have been a non-starter. Same with the Mexican border wall. Trump’s travel ban executive order has encountered a myriad of legal challenges. Nothing has gone smoothly for this administration.
But perhaps the biggest failed agenda item of all is the misfire of the repeal of the Affordable Care Act (ACA). Republicans had seven years to craft a replacement plan and deliver it once they came to power. Seven years! Despite this (and the aforementioned huge Republican majority in Congress), the latest repeal effort was voted down. The indignity was courtesy of Republican John McCain, longtime Trump nemesis and purveyor of the status quo. But at least this effort came to a vote. The first time Republicans tried to floor a bill, House Majority leader Mitch McConnell scuttled the vote before it even began. So some would call this vote “progress.”
Sarcasm aside, with zero legislative victories in the Trump trophy case, a resolution to the U.S. debt ceiling crisis is no given. Enough political foes may opt for brinkmanship in an effort to deal Trump a mortal blow, even if it means damaging the U.S. credit rating.
Could the globalists, deep state, progressives, opposition, “Never-Trumpers”—whatever you want to call them—be desperate enough to stonewall a budget resolution and place the blame on Trump? After all, a key player in this equation is Republican House Speaker Paul Ryan. He’s generally regarded as being on the globalist team.
What Is the Debt Ceiling?
The debt ceiling is a legislative cap on the amount of debt that the U.S. Treasury can issue. This, in effect, limits the amount of money that the U.S. government can borrow. Of course, the government has spending obligations spread out among hundreds of programs. Some of the debt is public in nature, and some of it is dispersed within intra-governmental accounts.
Once the limit has been reached, the Treasury operates under “extraordinary measures” to temporarily finance government expenditures and obligations until a resolution is found. America has been in this state since March 2017, but it cannot operate under “extraordinary measures” forever. The money siphoned away from surplus government programs into underfunded ones only lasts for so long. That period will be upon us this fall.
How much is the national debt? About $20.0 trillion and rising fast. Even during this post-Housing Bubble “boom” period, the national debt has not stopped rising. Simple logic dictates that if balanced budgets can’t be achieved in economic expansions, the coming recession will see deficits soar.
The pace of deficit buildup will be of particular concern to fiscal hawks in Congress like Mike Lee (R-UT), who are eager to curtail government spending. Lee also happens to be a Never-Trumper, which underscores the political minefield that Trump has to maneuver in order to get a deal done. Trump faces significant opposition from certain members of his own party.
With Congress already skipping town on its summer break, and Senate negotiations going nowhere, a U.S. debt ceiling crisis is looking more possible. With so many political foes, it’s unclear whether all of this is posturing…or something worse. If there were ever an event that would make Trump the fall guy, a very public and consequential U.S. debt ceiling crisis would do it.
The dollar, stock market, and U.S. credit rating would all get hammered. Inflation would rise sharply, and it would undoubtedly usher in a recession. If I’m reading the tea leaves correctly, I believe that these debt ceiling negotiations are no slam dunk. Some very powerful political opponents may leverage it to their own ends, economy be damned.