Topic: US with problems to raise the debt ceiling... again - page 2. (Read 456 times)

Of course not, but the other option is for the US government to decrease its spending a lot to get the deficit to zero (or ideally, turn a surplus). That means huge cuts across the board to healthcare, social security, the military, education, pensions, transportation, housing, veterans, food stamps, unemployment, etc., with the loss of millions of jobs. Whichever party did this would be committing political suicide for more than a generation. The average citizen doesn't understand the debt or the deficit, and doesn't understand the implications of national debt being ~140% of GDP and rising. But they would definitely understand if the government took away their food stamps, their healthcare, their pension, or their job. Both sides are therefore incentivized to just keep on printing and borrowing.

Another common phenomenon we are seeing. Wages being stagnant or increasing at below inflation rates, resulting in real terms pay cuts due to inflation. The average blue collar US worker has never had a higher wage in real terms than they had in 1973. Although only being paid at $4 per hour then, that was equivalent to over $23 per hour in today's money due to inflation.

This phenomenon is so bad in many parts of Asia in more and more countries already people are happy to accept US dollar even though it is not legal tender,,, I can say in Thailand and Vietnam even you can get a discount on items if you use USD, so it even makes sense for more and more people to hold USD bank accounts (yes, most Asian banks give you the option as far as I know) instead of their own fiat, regardless that it is actually NOT legal tender. Such is the sad state of fiat in this region. India is so proud of their currency but they are as well suffering from inflation you need more than 100 rupees for coffee (less than $1). Nobody uses the coins anymore.

Funny how USD works outside. I checked prices. $2 30 years ago would get you KFC meal (no McD yet in 1990 in my place) AND some change. $2 today still gets you that but no more change.

Local currency on the other hand, it has become over 3x the price.

Min wage has stayed 40 years and wage increase is <1% a year.


We ask that all of the time here as well. And economists have answers saying progress is more important and tell us all poverty is going lower and people are healthier and more educated etc.

But what is the worth of "health" and education and longer lifespans,,, when you live in debt forever, we are almost all renting rooms and not houses, and even afraid to have children because we cannot even feed ourselves.

The end game is so disastrous and yet,,, we may all be dead before it happens.

I have to disagree. Look at the M1 money supply of the US Dollar. Right now, it stands at $19.6 trillion ($4 trillion in January 2020). On the other hand, the M1 supply for EUR stands at $11 trillion ($9 trillion in January 2020). I don't know whether my source is accurate, but if it is so, then the growth in M1 money supply during the last two years for the US Dollar is just alarming. It went up by almost 5 times. I know that USD is the reserve and trade currency of the world. But does that justify this insane increase?

There are several reasons why the dollar still has value and it is impossible to mention them all, however while many people talk about the dollar being printed as if there is no tomorrow the same is happening with all fiat currencies around the world and in many cases the dollar is not being as heavily printed as those currencies, so when that is the case the local currency crashes while the dollar becomes a store of value and still buys what it bought years ago, however another reason is that a great deal of the dollars do not enter the real economy and instead are used to speculate in the stock market or are never used as governments store those dollars as their reserves.

The value is good for you, because you are comparing it against your local currency which has inflated even more than the USD has. Sure, USD hasn't undergone hyperinflation like some currencies such as the Zimbabwean dollar or the Argentinian peso, but it has still devalued pretty rapidly. 30 years ago a Big Mac meal would cost you around $2. Today you can't even get a medium fries for that much.

But yeah, there is a global desire for the US dollar to remain solvent. If it fails, we are looking at a global recession, trillions of dollars of lost value, and hundreds of millions of lost jobs. The US will certainly be "allowed" to rack up far more debt than a country like Greece, but when debt, deficit, federal reserve balance sheet, etc., are all already at an all time high and are all continuing to increase more quickly, you have to question what the end game is here.

I totally forgot about the euro actually,,, as I have never been there I still actually cannot practically imagine many countries using one single currency when they each have different rates of goods (like in Asia many similar things were proposed but because things cost very differently in different countries it posed a problem for us who should give in, to make price equal).

I always found it strange that US dollar can keep inflating supply but value actually is pretty good.

So for example my father said 1 dollar 30 years ago (I did not even know about money then I guess),,, 1 USD was good for one big lunch at a local store here. And the exchange rate was very small to our local currency.

Today 1 USD still can buy a big lunch, but the exchange rate has blow up to our currency, so we locals struggle with price increase but you could bring the same dollars 30 years ago today and live well, just as that time.

Judging from this, I would say US are unafraid to print more because outside, people still value their fiat more than majority of other countries in the world.

The main difference is that Greece have no direct control of their own money since they use the Euro. They can't just print more at will like the US can with the dollar, so their only option was sweeping cuts to get their deficit back under control. The US can go the sweeping cuts route, or more likely, just continually raise the debt ceiling and print more USD, but obviously at some point, that become untenable. When is that point? Who knows.

The crypto provisions are part of the $1.2 trillion infrastructure bill. That has passed the Senate and is currently waiting for a vote in the House, which Pelosi keeps delaying because she is not sure it will pass. There is a second $3.5 trillion budget reconciliation bill, which left wing democrats are demanding is passed before they support the $1.2 trillion bill.

It's not so much the split in the parties, but rather the way we make bills. Bills like these are thousands of pages long. Hardly anybody (and probably none of the people voting on it) have read the whole thing. Different people try to sneak in different things to get them passed without due consideration (such as these crypto provisions), and then amending these provisions becomes next to impossible because other Senators or Representatives demand things in return to not block amendments, such as Shelby blocking the crypto amendments unless everyone agreed to another $50 billion in military spending - two completely separate issues which should be debated and voted on separately. And then the bills can bounce back and forth between the House and the Senate for months.

It's utterly insane, but there is no desire to fix it because it allows politicians (both parties) to pass a lot of crap legislation for their own benefit.

The leftist Dems are responsible for blocking the spending bills. The GOP are responsible for refusing to raise the debt ceiling. The two things are separate issues.

Contrary to what being posted here, it is the "liberal" wing of the Democrat party that is responsible for the current impasse. The GOP is ready to vote for the bill, but the ultra-left wing led by Pramila Jayapal want the $3.5 trillion bill on welfare to be passed first. They have threatened that they will not allow this bill to pass, unless the other one is tabled first. Despite all that, the media is painting a picture of GOP blocking the bills and bringing the United States closer to a default. Hardly anyone want to talk about Pramila Jayapal, Ilhan Omar and the ultra-leftists who are responsible for the current crisis.

I don't think anybody credibly believes the US would default; it would usher in an instant global financial meltdown and global recession, if not depression.  Default is always a theoretical possibility, but extremely unlikely given the consequences which are well known.  If investors believed it was more than a remote possibility, you'd see deep waves of selling in the markets, not these piddly 2-3% drops. 

Good point, this is not something that I have thought about but you are absolutely correct, I think in part this is what is motivating the actions that we are seeing at El Salvador, the US dollar is legal tender there as well, but the US by expanding its money supply is also expanding its inflation and exporting it to the countries that are making heavy use of their currency, whether this is done as reserves or as a legal tender, so it seems to me the president of El Salvador is preparing his country for this scenario before it becomes a reality.

I totally agree. Out there we have people thinking they save Bitcoin and when the world ends like they predict, they will be saved. But if USA fails, the world at large will suffer consequences. Maybe having Bitcoin helps a lot but it will not be the saviour.

After all if 1 Bitcoin becomes 1 million dollars but dollars is not the same value as before, then what is the point?

Such stories from people lining up to buy limited food only happened 50 years ago. We should not forget the lessons of our grandparents.

I was being figurative. Raising the debt ceiling is like opening a new credit card account so you can continue taking on debt after your current issuer cut off your borrowing limits. So really, the debt ceiling doesn't mean much because you can keep opening up new accounts and keep borrowing. It also means you can continue to convince the population, and other countries, that you're still good for repayment on the debt when they're just pushing the collapse off.

Well, credit card is a billion dollar industry so US government will definitely not let go of that one, they will continue this even though they know that the economy won't be able to handle it, plus it's hard for them to fall because they're a superpower nation so they know their way around this kind of stuff.

The US federal reserve liabilities chart just shows you where all this economic policy ends up.

https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

Taking on more assets than they can chew, unfortunately. All in the so called quantitative easing strategy which they hoped would not produce inflation, except it did. So now you're left with an increased money supply and a balance sheet that doesn't quite add up.

The inflation crisis isn't necessarily a surprise, a lot of the institutional investors are calling this properly. But as far as total USD collapse, perhaps you're right that the debt will be the tipping point at which the debt to GDP ratio will reach a critical point. Although I must say, anyone that is paying even a little attention has probably already jumped ship.

If the US would end like Greece you wouldn't care about them anymore because everyone in this world would be so deep in sh*** a submarine would be crushed. And don't think gold or bitcoin or having a garden would save you, such an economic disaster would drag down instantly both the Eu and China, then the contagion will spread to every last place in this world and even people who come into cities once a year to buy salt and sell fur would be affected.


I'm getting confused with all these damn bills.
Isn't the one with the crypto-related stuff the infrastructure bill, that should be voted prior to this one on social spending, the one with 3.5t? So if this doesn't pass the other has no chance of going through, because if the leftist wing doesn't vote on this one of the courses the moderates will drop that one too?

Seriously sometimes politics in the US are more messed up than in European countries where having 6-10 parties in the parliament is normal.

To be fair, most countries are also increasing their rate of debt increase. Us in Asia here are also making shocking debt increases, in the last 10 to 20 years almost all of us have doubled our debt,,, and yet I see things are not getting better with inflation and economic crisis getting worse not better. I guess we are all following US financial tactics and it is getting us nowhere.

Luckily we do not have wars to pay for too otherwise I probably will end up homeless.

What happens now if US becomes Greece? Can they save themselves?

It voted and passed the Senate. It's currently being debated in the House. It was supposed to have been voted on earlier this week, but it seems Pelosi keeps pushing it back because she's not sure it will pass.

And they show no signs of stopping. $3.5 trillion here, another $1 trillion there. The debt isn't just increasing, but the rate of increase is increasing as well. It took the entire history of the US until 1996 to rack up $5 trillion in debt. It then took 13 years until 2009 to add another $5 trillion on top. The last $5 trillion we've added didn't even take 2 years. In the 80s, as a percentage of GDP our debt was 30%. By 2000, 55%. By 2010, 90%. Today, above 130%. How far can we go until people starting losing faith in the USD? For comparison, in 2010 during the Greek debt crisis, their debt-to-GDP ratio was 150%, peaking at 180% a few years later. We are only a few years away from those numbers at this rate.

I quite doubt on this matter whether the US government is in danger of shutting down
And the reality is that there will be concrete solutions and the problem is still becoming very politically tense, going beyond the economic sphere before. It is not uncommon for the beginnings of the US economy to fall into a recession if the debt ceiling is breached.

OK.. I would agree. US Dollar is at least the most recognized fiat currency and the one with maximum acceptability. CHF is one of the strongest fiat currencies available (I would rate the Norwegian Krone as another strong fiat currency). But it is hardly used in international trade and rarely features among the forex reserves of various countries. The Swiss government also has made no attempt to widen the usage of CHF. It is surprising, because it is a much stronger currency when compared to USD, EUR, GBP or JPY.

It's probably in the interest of the US just to open up the new credit card and raise the debt ceiling, because the debt burden is never going to be lowered. It's just best to pretend that Americans are stupid enough to believe they can continue spending and somehow never default on their loans. What's even more scary is the 3.5 trillion in additional spending they want to do, absolute madness.