Debt Ceiling Drama, Yellen Begins “Extraordinary Measures” to Stave Off Default
Two years ago, the debt ceiling was lifted. Lifting the debt ceiling to make room for more government spending has been pretty routine since since 1917.
While it’s quite likely that U.S. debt had already reached the point of no return around three years ago, amazingly the situation might have just gotten even worse. Why?
The debt ceiling extension that was granted back in 2019 has expired. Oops.
Janet Yellen is taking what are called “extraordinary measures” that hopefully will keep the U.S. economy from spiraling into a historic disaster of defaults on bond payments and government obligations, skyrocketing interest rates, and massive inflation.
The non-partisan Congressional Budget Office (CBO) predicts the Treasury will run out of cash in October or possibly November.
So as reported above, the U.S. risks default within 90 days if nothing is done.
Yellen wrote a strongly-worded letter to Speaker Nancy Pelosi, describing the potential for “irreparable harm” if no action is taken.
But it might already be too late…
A closer look at the official U.S. debt reveals an unbelievable increase over the last 20 years:
That’s a 4.6x rise in “public debt,” meaning money the U.S. government owes. It’s called “public” debt because all of America shares the responsibility for paying it back. It’s public debt because the public, you and me, are on the hook for it.
Amazing, isn’t it?
Even so, this isn’t the first time “extraordinary measures” have kept the government spending machine humming along in response to debt-ceiling politics. But this couldbe the first time the clock will run out before a solution is reached.
Surprisingly — or perhaps not — the White House appears to be simply avoiding the current problem.
“The White House has all but washed its hands of the debt-ceiling morass,” as CNBC reports reporting on the issue. Then explained why the administration seems to be sweeping this issue under the rug:
It sure seems like Yellen, Pelosi, and the rest of the Biden administration are stuck between a rock and a hard place: spend more or default. Both have serious potential consequences. Either choice could result in Druck’s economic meltdown we discussed last week.
Nobody wants to say authorize more spending. Sure, they love spending, but nobody wants to take responsibility. On the other hand, even the most fiscally hawkish (which we’d call “responsible”) lawmakers cannot let the U.S. default on its obligations to pay the bills: soldiers’ salaries, research grants and debt service payments to everyone from foreign central banks to Main Street savers. Among many, many other things.
This political hot potato is too hot for Congress to handle.
Nobody Wants to Pay the Bills
Claiming 2019’s episode of “debt ceiling theater” was irresponsible, Senator Jon Tester made an alarming (yet obvious) statement: “If we’ve got folks on the other side of the aisle or my side of the aisle that don’t want to pay the bills, that’s pretty bad.”
Worse, some politicians don’t even want to discuss it. Many Progressives and some Democrats view the debt ceiling fiasco “as a bogus fight over an essentially imaginary number that should be raised automatically.”
Senator Elizabeth Warren confirms this line of thinking, saying: “Raising the debt limit should just happen” without a thought to the potential consequences.
And there’s a rather disturbing lack of urgency to handle the situation:
Maybe then the U.S. debt will get some attention soon? Right now, even a “solution” would just kick the can down the road a little further.
Rest assured, we’re watching history being made. Will that history reflect a series of increasingly shocking rises in “public debt” until we have to invent new numbers to describe it? Or will our history instead record a historic default, a complete worldwideeconomic collapse, and subsequent chaos?
Either path would mean the end of U.S. economic leadership. The dollar would collapse, permanently. Foreign investment would flee, and America would devolve into a second-world country, like the U.K. in the aftermath of World War II. This could happen quickly, with a default, or slowly, as our debts continue to grow faster than the nation’s GDP.
We hope and pray our leaders can chart a path through this truly perilous economic storm into a safe harbor. (Even if they do, we’ll all have a lot of work to do to make good on all that “public debt.”) We fear they’ll waste too much time arguing over the map instead. For that reason, now’s the time to make sure your financial lifeboat is in good shape…
Provisioning your economic lifeboat
While Congress debates on whether or not to turn the ship to avoid the iceberg, let’s keep our focus on what we can do. We can’t fix Washington’s addiction to spending our grandchildren’s tax dollars. We can’t balance the nation’s budget. Here’s what we can do…
Jim Cramer recently reminded us we’ve been through something similar. We saw gold’s growth potential during historic times like these:
If you don’t already have a game plan, now is the time to make one. No one will do this for you. Do not make Congress’s mistake of just hoping somebody else will take care of it… While you’re at it, consider whether physical gold and silver is the right ballast for your financial lifeboat. And remember: you’ll want to make your plans before the crisis arrives. Once the ship starts sinking, it’s too late.
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