At What Point Will U.S. Debt And Deficits Break The Mighty Dollar?
October 14, 2021—After much trepidation by global bankers watching lawmakers in Washington, D.C. toss responsibility of the nation’s debt back-and-forth, Congress passed legislation this week giving the world’s market watchers a sigh of relief. Catastrophe can wait until another day. Today, the bill became law.
Specifically, Congress added $480 billion to the previous U.S. national debt limit of $22 trillion. It’s estimated that provides enough cash for the U.S. Treasury to continue paying salaries of government workers and military, bills for daily operations, providing entitlements and other obligations through December 3.
It is real. Not only are democracies fragile, so too are the currencies they run on. It should come as no surprise that the foreign diplomats for China and Russia agreed to work together earlier this year to undermine the U.S. dollar.
Oddities And Ironies
Oddly, the measure to provide this cash allowance traveled through Congress not as a standalone bill. No, that would be too simple and straightforward a path. Instead, lawmakers added an amendment to a bill said to “Promote Physical Activity for Americans.”
H. Amdt. 129 to S. 1301 replaces the proposal to encourage Americans to exercise with plans to increase the debt limit.
National Media Gets It Wrong
Ironically, despite the significance of the bill, it took an obscure path through Congress. It’s a reflection of the details of the national debt that are just as obscure. Perhaps that’s why so many media outlets, including the New York Times, got the facts about the story wrong.
Note, the October 12 story in the NYT that says, “The legislation lifts the debt ceiling by $480 billion.” The reporting allows a huge miscalculation of the national debt. The reporter goes on to say the current national debt limit is $28.4 trillion. Sadly, that’s sloppy reporting by the nation’s top papers over the most critical issue of governance: economic sovereignty.
Obscuring the Details
As the GER reported July 29, the total outstanding debt was $28.4 trillion while the debt limit was $22 trillion. (Today, it is $28.87 trillion.) When Treasury Secretary Janet Yellen wrote to Congress about the statutory limit in July, she neglected to mention either amount. Furthermore, she did not say that the limit had already been breached—and by six trillion dollars.
Oh, you might say, What difference does it make? It’s just six trillion dollars.
That’s the attitude of most members of Congress, recent presidents, Federal Reserve Chairman Jerome Powell and the massive lobbying community in Washington.
Even Wall Street’s top financer appeared to dismiss the notion of debt during a recent virtual meeting with President Joe Biden.
“We should get rid of the debt ceiling,” said Jamie Dimon, CEO of JP Morgan Chase. “We don’t need to have this kind of brinkmanship every couple of years.”
Default Would Be A ‘Complete Catastrophe’
It’s hard to know Dimon’s true feelings, but in that interview with the president, he said nothing of paying down the debt. He went on to say that if the U.S. government ever defaulted on its debt to lenders, the impact would be a “complete catastrophe for the global economy.” Furthermore, Dimon cautioned that America’s treasury is “the bedrock” of the world economy and peace.
U.S.-Style Democracy ‘At Risk’
For Biden’s part, the president admitted that there’s a great debate in the world “over whether or not we can function in the 21st Century.” He said leaders in Russia and China, Xi Jinping and Vladimir Putin, are betting that democracies cannot function.
“They really believe that autocracies are the only way forward,” Biden said. “It’s not a joke. And we’re seeing the effects of this around the world…. We have always led the world not just by the example of our power, but the power of our example. And that’s going to be called into severe question. I mean, for real. For real.”
It is real. Not only are democracies fragile, so too are the currencies they run on. It should come as no surprise that the foreign diplomats for China and Russia agreed to work together earlier this year to undermine the U.S. dollar.
And Back To The Debt Question. . .
With that in mind, one wonders why the nation’s leaders are only arguing about the debt limit and not the actual debt. Is it too late to pay down the debt?
It’s true that it’s a relief that Congress provided some funds to avoid a national default on loans to the United States. The results of default would, indeed, be catastrophic. But, it’s discouraging that no one is actually talking about paying down the debt. Due to low-to-no interest rates, U.S. leaders are content to only pay the interest on the loans.
Federal Reserve Chairman Powell says that is perfectly alright. He’s testified many times to Congress that as long as inflation doesn’t rise above 2 percent, the interest is easy to pay. The Fed can keep printing money (increasing the money supply). And Congress can continue its 20-year spending spree.
Privilege of the World’s Reserve Currency
The United States has the world’s reserve currency: the mighty U.S. dollar. And that gives the United States enormous privileges.
The reserve status of the U.S. dollar is, in fact, the envy of the world’s autocrats, terror networks, and criminals.
One wonders how long it will last. Most Americans likely don’t worry about these things, trusting their leaders. But let’s remember, it was these same leaders in Washington and Wall Street who created the 2008-2009 global financial crisis. With that said, it may be time for Americans to look beyond the obscurity to find answers and solutions.
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