There is plenty of commentary on the Big, Beautiful Bill, or the Big Bad Bill. Or Big Horrible Bill. Quick summary: Many Senate Republicans favor it, because it advances Trump’s agenda. Democrats will vote against it, for the same reason. We will simply refer to it as BBB.

There are millions of Americans who are more focused whether Sean ‘Diddy’ Combs will be found guilty of sex trafficking or the Bezos-Sanchez dream wedding in Venice. I don’t blame them. I haven’t followed either story, but here’s my take anyway. Combs is very guilty. On the wedding thing, Forbes recently posted that they think it costs around 25 million dollars. It was held on the island of San Giorgio Maggiore. Whether they were already married is open for debate.

Back to our real story. What has emerged as a weird sticking point is raising the debt ceiling by another 4 to 5 trillion dollars. The House version says 4 trillion, and the Senate version say 5 trillion. I call it weird, because Elizabeth Warren, the ardent Democrat, who clearly would call it the Big Horrible Bill, would eliminate the debt ceiling entirely. So, would Trump and on this point, they are both right!

Here’s Warren’s exact words:

“It is possible that hell has frozen over. President Trump and I agree on something very important: Abolish the debt limit. The debt limit is a political tool that allows the minority party to threaten economic collapse, forcing Congress to negotiate its demands. It serves no other function. None. It has no impact on spending, and it doesn’t restrain the growth of the national debt.

“I’ve pushed publicly and privately, whether Democrats or Republicans have been in charge, to scrap the debt ceiling permanently. Now, with Mr. Trump’s support, our country could finally get rid of this form of brinkmanship that has, for decades, threatened the stability of our economy.

The debt limit caps the amount of money the U.S. government can borrow. If the government hits the limit before Congress authorizes an increase, the U.S. would default on its debt. That means not making interest payments on U.S. bonds, not paying our military or halting Social Security checks. Chaos in the financial markets could cause millions of Americans to lose their jobs, while the cost of home mortgages and car loans would skyrocket. In short, we would create a self-inflicted financial crisis.”

It is very weird, as both Elon Musk and Rand Paul, make this a real sticking point for passage. Musk obviously in not a Senator, but he has made it his mission to see that the BBB is defeated by blasting away on Twitter. I’m saying this is weird, because both Musk and Paul are using the popular misconception of what the debt ceiling is, to support their views.

It is getting really nasty on social media as Musk described the BBB as follows:

“pork-filled spending bill that will massively increase the budget deficit and burden American citizens with crushingly unsustainable debt.”

Trump is parting ways with traditional Republicans, who reasoned that the best way for our economy to grow, was with less government intervention. Now, Trump promotes tariffs, which can artificially raise the price of US products to benefit manufacturers and hurt consumers, until the day when they are gone.

He would like to sack the head of the Federal Reserve, so he can cut rates, further fueling inflation, perhaps not immediately, but he would leave a terrible mess for the next administration. This is absolutely the worse government interference imaginable as it allows a president to play politics with interest rates. All to achieve very short term gain.

The national deficit and economic growth not the debt ceiling is what we should be worried about, and these will be impacted by the BBB and tariffs. Warren, Trump and others (like myself) want the debt ceiling gone, but simply raising it to 5 trillion dollars, will keep it from being a political bargaining chip in the short term.

I find it also bizarre that both Musk and Paul would make claims about raising the debt ceiling, completely contrary to statements from the US Treasury, under both Democratic and Republican presidents. But, at least with Senator Rand Paul, he’s had years of practice.

Don’t raise it, scrap it for the benefit of the current and future presidents.

Stay tuned,

Dave

Sen Warren: New York Times Opinion

There are dozens of Trump’s proposals which I disagree with, but the proposal to get rid of the debt ceiling is correct. It will require an act of Congress to get rid of the debt ceiling and should be a time when Republicans and Democrats can agree that it causes more problems than it solves.

The debt ceiling does not put a limit on our spending. The US is obligated to pay the bill for approved expenditures by Congress. I have posted this numerous times and the consequences of not passing a debt ceiling bill in time can be terrible for the US.

A meaningful debate on our growing debt can be done without resorting to the last minute drama that comes with raising the debt ceiling.

Stay tuned,

Dave

The debt deal is done. I’m very glad. We were exactly 3 days from declaring default, and the damage would have been severe and long lasting.

There are a lot of commentators out there answering the wrong question – who won? Or which party got the best part of the bargain. It is like a game of poker, and who has the higher pile of chips.

What all this negotiated deal boils down to, is a deal that lasts until January 2025. Perhaps there is an extra four months with extraordinary accounting measures. Of course, nobody really knows who will be at the table in 2025. Could definitely be worse. One little misjudgement, and we could be in a world of hurt.

After President Biden and Majority Leader McCarthy agreed on the terms of the agreement, the House Committee on Rules had to decide whether to allow the bill to go to the floor of the House. The committee consisting of 13 members had 3 days to decide. The committee was split 6-6 with one undecided.

Representative Thomas Massie from Kentucky was at this point in the driver’s seat, determining whether or not we would go run out of funds to pay our nation’s bill. And it didn’t look good, because it sure sounded like he was going to block the vote from coming to the House. But he voted Yea and the bill kept on rolling. How does one person get so much power?

The question is does this debt limit ceiling do any good? If it does any good, why is it that not a single country other than Denmark, has an absolute limit on the money the government is allowed to borrow. In Denmark the debt ceiling is set so high, there isn’t any intense negotiations to raise it.

In fact, the debt ceiling limit does no good at all and the risks of missing the deadline are sky high. Neither political party should be allowed to hold the US economy hostage to demand certain concessions. The US must pay for its obligations. The deficit is created when spending is higher than revenues, thus the remedies are either increase revenues or cut spending.

Spending is controlled in the budget process, which by our Constitution is the responsibility of Congress. A debt ceiling is redundant, and for the good of our country needs to be repealed.

We are not headed towards bankruptcy. Believe me, there are countries in huge financial turmoil. The US is not one of them. People rush to withdraw money from banks as a country is in turmoil. In the US, they save more in their bank account.

When grandparents see the birth of a grandchild, their perspective has to change, to a much longer view. There are a lot of good things government is doing right now which will help the next generation. Access to higher education and better health care have come a long way, but the progress must continue. The next generation will have to deal with climate change and use of alternative fuels. Not easy choices.

The debt ceiling is a relic, created by my generation and should end with my generation. Once gone, nobody is going to bring it back.

Link: Raise the debt ceiling. Then fix our democracy.

Stay tuned,

Dave

First, congratulations to both Kevin McCarthy and Joe Biden on the debt ceiling deal. The Senate and House need to pass this deal whether they like it or not. There just is no time left.

The most important part of the deal is it will last for 2 years. Dana Obeidallah from CNN writes that for Democrats who don’t like the deal, some things could be reversed if they win back the House in 2024, and still have a Democratic president.

Even better would be win back the House in 2024 and get rid of the debt ceiling.

Stay tuned,

Dave

House Majority Leader Kevin McCarthy and President Biden have had a number of meetings this week to finalize a debt deal. As I have said many times, the debt ceiling should be approved without any conditions. It is not authorization to spend money, but to borrow enough money to pay the bills.

Treasury Secretary Yellen has stated that the debt ceiling must be raised on June 5 to avoid sovereign default. The consequences of default are extremely serious in terms of employment and the chance of recession. See link below:

Link Whitehouse.gov: Debt Breach

The deal in progress is to lift the debt ceiling sufficiently to cover the next two years. So, June 2025 would be the next time the US would once again be in this game of brinkmanship.

The major sticking point seems to be tougher work requirements for Federal aid program including food stamps and Medicaid. I can understand why the Medicaid work requirements are particularly contentious, as the states would be enforcing denial of medical payments to low income families. And, you can be sure if you live in a strong Republican state, officials would be blaming it on Washington, namely President Biden, for loss of medical benefits.

The future spin of Republicans in the 2024 election, is that the idiots in Washington (Democrats) spent all the money on the Ukraine war, so there is nothing left to pay for food and health needs for the poor in the US. And nobody has a job because Biden let everyone in over the border. Powerpoint bullet: Too much is spent outside the US and too little inside.

The reality is that it is the Republicans who are circumventing the democratic process and pushing through their own agenda on the threat of driving the US into default.

Link: Tougher work requirements for federal aid programs pose obstacle in debt limit talks

The only other country with a debt ceiling is Denmark, which is set so high, that it never becomes an issue.

Link: Denmark’s Debt Ceiling

Economist Paul Kruger explained in a recent New York Times column that government debt is not comparable to personal debt. Personal loans can really be destroy lives when individuals no longer have the ability to repay them. This can often happen later in life. Governments don’t have a lifetime, and as long as there is confidence from the financial community (particularly credit rating agencies), that the reserves and revenue stream are sufficient to service the debt, then our credit is fine.

McCarthy is actually fighting two battles, one with Biden and Democrats, and the second one with his own party. Within the Republican party, there are a known set of obstructionists, who will be quick to point out the insufficiencies in the deal. They will likely minimize the risk of default, a horrible mistake.

There is a third group, which I will call the sideliners, and this includes the Freedom Caucus and Donald Trump, who will almost certainly attack the deal as insufficient. Anyone who attacks the deal as being weak, will be headline news on Fox News.

Former Treasury Secretary Jack Lew was on a cable station, echoing Yellen’s warning that default would be catastrophic. Further, he suggested that if work requirements for federal aid programs can’t be resolved by June 5, just take them off the table for now, and leave them to future discussions.

This is the democracies should be working and it takes a lot of work to resolve issues. Maybe Medicaid is in need of reform. In that case, Republicans should work to explain what they want from their constituents, gain more representatives in the Senate, and win a majority in both houses, to pass for Medicaid reform.

The Democratic process makes a whole lot more sense than to hold the US economy hostage until Republicans get what they want.

Stay tuned,

Dave

Scary stuff from the US Treasury on May 22:

“With an additional week of information now available, I am writing to note that we estimate that it is highly likely that Treasury will no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1,” Yellen wrote Monday [May 22].”

Under these conditions, Kevin McCarthy would in a more rational world just buy time, by passing a bill that would suspend the debt ceiling for a couple of months. Why isn’t he doing it? To pass a suspension, would require the vote of a small group of Republicans who think all this brinkmanship can work to their advantage. They want their pound of flesh from Biden. It is a political power game. And this time, it just might go too far.

Yes. Default is a self-inflicted wound. The equivalent of crashing a plane to draw attention to flight safety.

I know the country would be just fine without a debt ceiling. Congress already has the authority to raise or lower taxes and approve spending. Yes, if Congress does not approve a budget, we go in shut down mode, where government services must be cut. This is very different. The US can not default on its debt as the world depends on the dollar.

The minting of a trillion dollar coin, issuing premium bonds and invoking the 14th amendment, have all been suggested, and described by others as gimmicks, which would result in a massive loss of confidence in the credit of the US.

I don’t know how the next 1-3 weeks will play out.

Stay tuned,

Dave

Of course, I’m assuming the Republicans take control of at least the House, and next year refuse to increase the debt ceiling unless their demands are satisfied. It appears this will be cuts in Medicare and Medicaid, making sure that Biden will be a one term president. It will be how to hurt Biden or any other Democrat candidate in the future.

It is the reason I voted for only those in the Democratic Party in the mid-term election. We have never defaulted on our debt, and it will be terrible if that happens.

It is the definition of brinkmanship:

“the art or practice of pursuing a dangerous policy to the limits of safety before stopping, especially in politics.”

The debt ceiling doesn’t limit government spending. It is permission to borrow the money necessary to pay for its committed expenditures.

Link: https://www.reuters.com/world/us/us-congress-could-be-bruising-debt-ceiling-fight-after-midterms-2022-10-10/

Stay tuned,

Dave

They will pursue a very different agenda. Of course, all efforts to legalize abortion will end. Jan 6 committee will be disbanded. Funding for green energy, I believe, will disappear.

But, none of this I believe is as terrible as another showdown on raising the debt ceiling limit. I’ve written about this in a number of blogs. It is not about controlling how much Congress can spend. It is all about allowing the White House to borrow money it needs so it can pay for its obligations. If the government does not pay its bills, then the government is in default.

Default has extreme consequences. The cost for the US to borrow money will soar. The stock market will plummet. And businesses will fail. And it is all unnecessary, because the debt ceiling does not limit spending.

I’ve got at least 5 blogs on this topic.

I’ve decided to vote straight Democratic in the mid-term elections. Too many radical Republicans out there and I am definitely afraid they could tank the economy just to do battle with the Democrats.

Stay tuned,

Dave

Check out previous posts on this topic by adding Debt Ceiling to the search box.

It’s one of the most reckless, one of the most irresponsible votes I’ve seen taken in the Senate, and it should send a signal to every family, small business, market watcher, about who in this chamber is in favor of endangering the economic stability of our country,” said Schumer on the Senate floor, following the vote.

Schumer is right. A procedural vote in the Senate failed by a vote of 50 to 48. It solved two critical problems: (1) Extension of short term funding for the government and (2) Raising the debt ceiling limit. We’ve experienced the consequences of a lack of funding, as we’ve had partial shutdowns in the past. It is bad, but nothing in comparison to a failure to raise the debt ceiling. That is catastrophic.

My credit card has a limit. The debt ceiling is NOT analogous to the credit card limit. The reason is, the debt ceiling does not limit government’s ability to spend money. Congress separately authorizes the expenditure of money. The debt ceiling allows government to borrow more money it needs to pay for ALREADY approved expenses including pay for the military salaries and social security.

From the Washington Post, “Treasury Secretary Janet L. Yellen said earlier this week that such a default would be unprecedented in U.S. history. Moody’s “best estimate” is that this date is Oct. 20, although Treasury has not given a more precise day.

At that point, Treasury officials would face excruciating choices, such as whether to fail to pay $20 billion owed to seniors on Social Security, or to fail to pay bondholders of U.S. debt — a decision that could undermine faith in U.S. credit and permanently drive federal borrowing costs higher.

Failure to raise the debt limit would have catastrophic impacts on global financial markets. Interest rates would spike as investors demand a higher rate of return for the risk of taking on U.S. debt given uncertainty about repayment. An increase in interest rates would ripple through the economy, raising costs not only for taxpayers but also for consumers and other borrowers. The value of the U.S. dollar would also decline long term as investors questioned the security of purchasing U.S. treasuries. The cost of auto and home loans would rise.”

I’ve written on this topic before. I suggested instead of calling it an increase in the debt ceiling, just refer to it as allowing the government to pay it’s bills when they come due.

Debt Ceiling Approval Issue: Unbelievable

Every single recent president has required Congress to increase the debt limit (see links). A new twist is simply to suspend the debt limit temporarily, allowing Republicans a way out of actually voting for a debt increase. It is a way to kick the can down the road.

It is estimated that the 2011 debt ceiling crisis cost the government 18.9 billion dollars in increase interest and credit downgrade which followed, resulted in the Dow Industrial Average dropping 2,000 points.

Yes, all Presidents including Reagan, Bush I, Clinton, Bush II, Obama and Trump, who proudly proclaim they were more fiscally responsible than Democrats (Bush GW was famous for “Read my lips, no new taxes”) all needed the debt ceiling raised to keep borrowing money. In fact, the one president who had to go to Congress the most, was Reagan.

My credit card has a payment date, and failure to make a minimum payment on that date, will affect my credit. That is the appropriate analogy. Failure to make payment of money the country owes on time will affect the faith and credit in the US government, something that can not be risked.

The political deadlocks on raising the debt ceiling are occurring more frequently, and it is very scary situation. I have no problem with Republicans who state that we should spend less on various programs, but this is all about money we have to pay. Full stop.

Moody’s Analytic report concludes, “The U.S. and global economies, which still have a long way to go to recover from the recession caused by the pandemic, will descend back into recession. In times past, lawmakers have taken strident warnings like these to heart, and acted. Let us hope they do so again. Soon.”

Put simply, we are making great progress recovering from the pandemic, despite some distractions from anti-vaxxers and it is a lousy time to shoot ourselves in the foot. It is pretty simple. We have no time for grandstanding or brinkmanship.

Stay tuned,

Dave

Links:

History of Debt Limit Crises

U.S. default this fall would cost 6 million jobs, wipe out $15 trillion in wealth, study says

Senate Republicans block bill to avert government shutdown and extend debt limit