It's both shocking and unbelievable, and also... entirely predictable.

Shame on all ideologues in congress incapable of compromise.

(A few other countries have some sort of debt limit, but they're generally expressed in terms of fraction of GDP, which is _somewhat_ less problematic, though may have undesirable effects in a financial crisis... Doing it in absolute terms is _obviously_ going to lead to problems, though.)

But debt can be fiscally sound, as anybody with a mortgage knows.

https://www.factcheck.org/2008/02/the-budget-and-deficit-und...

The most significant long-term problems they created were probably exempting rich people from Social Security taxes on more than their first $125k of income and Medicare plan D, both of which created massive time bombs as the boomers headed towards retirement. The longer we delay dealing with those, the harder it’ll be to close the gap — which is exactly what they were counting on to build support for privatization.

It was for efficiency:

"Between 1788 and 1917, Congress would authorize each bond issue by the United States Treasury by passing a legislative act that approved the issue and the amount.

In 1917, during World War I, Congress created the debt ceiling with the Second Liberty Bond Act of 1917, which allowed the Treasury to issue bonds and take on other debt without specific Congressional approval, as long as the total debt fell under the statutory debt ceiling" [1].

There is no original sin. We just need a law that permanently authorizes the Treasury to borrow as needed to pay for the things the Congress told it to spend on.

[1] https://en.wikipedia.org/wiki/History_of_the_United_States_d...

Biden should just print a $999T coin and make it a non-issue forever. They seem to be favoring the 14th amendment approach but that seems dubious given the current Supreme Court.

Rather than selling off real assets, the answer is for the executive to create new money themselves ("mint the coin") rather than continuing to be beholden to the Federal Reserve. As we saw with this last spate of pandemic price inflation, the Federal Reserve's technocratic mandate means they will have to adjust and take money out of circulation to compensate.

1. Executive branch mints coins

2. Coins are deposited

3. Functionally this raises the debt ceiling, albeit in a roundabout manner

4. Fed. Reserve tightens monetary policy to compensate for increased circulation of USD

5. Banks are less able to lend cash on a credit basis to private enterprise, since all banks are dependent on Fed. Reserve for cash to back such lending

If it continues long enough wouldn't this eventually mean that the only entity with any credit would be the Federal Government? I'd suspect a weird commercial futures swap market would pop up in lieu of traditional credit lines.

I'm assuming this is a continuous loop. So over time wouldn't interest rates tend to infinity? Or maybe not, because raising interest rates at some point would be of no utility. If no one is using credit, raising rates doesn't actually change anything.

Interest rates and the ability to issue credit are mostly orthogonal concepts (interest rates do affect the real and perceived abilities of a debtor to pay back a loan, which does affect creditworthiness).

The sheer majority of "money" in our economy is actually credit/debt. Your bank account balance doesn't indicate a physical pile of money somewhere, rather it's debt the bank owes you. They in turn do things like buy US treasuries which are debt the government owes them, or loan it out as credit card balances which are debt that other consumers owe them. A dollar in your bank account contributes to your own sense of purchasing power AND (for example) the credit card user's purchasing power. Increasing interest rates makes debt less desirable to have, thus decreasing the money supply.

I don't know what you're saying about rates tending towards infinity?

Get ready for your $250 cup of coffee, and 20%+ interest rates forever if they do that.

Monetary inflation that is not spent into the economy will not result in price inflation, or asset inflation for that matter. If the coins are held by the Executive or used to pay off debt held by the Federal Reserve, the new money won't enter the economy. Where things would get "interesting" is if the coins were used to pay off privately held debt (then that money would have to find somewhere else to be parked), but that would directly affect asset prices rather than consumer prices.

I for one think it would be great if the Executive/Legislature took back some monetary creation responsibilities from the Federal Reserve. We've had massive monetary expansion over the past few decades, but due to the way the Federal Reserve creates new money, it has chiefly resulted in asset inflation (hence "line always goes up") while actually squeezing the productive economy.

The real hazard of minting too much new money that sits around is that when a spendthrift Republican gains power, they might spend it all to recreate this "debt ceiling brinkmanship" dynamic for their kayfabe of fiscal responsibility - in a way that the effects don't show up until a Democrat is in office of course.

I don't understand how it would change anything about prices. The Federal Reserve already sets the interest rates indpendent of the deficit. Congress already has the ability to adjust the budget and pass laws to change spending, or increase/reduce taxes. The CBO already gives Congress estimates for every law and it's effect on the deficit.

Right now it's not clear if McCarthy and the MAGA wing understand what that means.

There is no brinkmanship, people need to realize that. A crashed economy with high gas prices, rampant inflation, etc... in an election year is exactly what the GOP wants when a Democrat is in the White House. Why do you think right-wing media has been screeching about "Biden's crappy economy" for months now while the GOP's only play is to push Biden to enact a 315 page budget that features 271 pages of handouts to the Oil&Gas lobby? They put in what they want, and have the upper hand, because they get to blame it on Biden when it inevitably goes to shit, and look like they tried something and all Biden said was "no" and a crash happens. That play has worked time and time again and it wins elections.

The GOP playbook for as long as I've been alive is "break things when we're in power, but make sure they aren't visibly broken until a Democrat is in power, and then raise hell about how Democrats always break things, so people will vote us back in".

NINJA EDIT: I wish people were educated enough to understand why Washington and his greatest political rival, John Adams, both were in unison when it came to suggesting that a two party system would destroy our country.

Washington: “The alternate domination of one faction over another, sharpened by the spirit of revenge, natural to party dissension, which in different ages and countries has perpetrated the most horrid enormities, is itself a frightful despotism.”

Adams: “There is nothing which I dread so much as a division of the republic into two great parties, each arranged under its leader, and concerting measures in opposition to each other. This, in my humble apprehension, is to be dreaded as the greatest political evil under our Constitution.”

Yet, here we are.

An economic crash under Bush in 2008? No, an economic crash under Obama in 2009.

Pandemic money printing under Trump in 2020? No, pandemic money printing under Biden in 2021.

Didn't you slap 3 trillion dollars onto the debt in your last admin just to give tax breaks to the rich?

It's all a show.

You see a fair bit of that sort of logic on the right lately. Saletan's "The Corruption of Lindsey Graham" [1] documents the shift nicely, with Graham going from a senator who believed in democracy and inter-party comity to one who says Democrats "hate us" and "want to destroy us", claiming "there’s nothing they won’t do". Or look at Trump calling for the "termination of all rules, regulations, and articles, even those found in the Constitution".

In that context, political actors can claim and might even believe that saving America from the boogeymen might require making things worse before they step in to put things right.

[1] https://specialto.thebulwark.com/p/the-corruption-of-lindsey...

I have two possible explanations. 1) Our politicians are remarkably morally virtuous, and there is virtually no graft and corruption whatsoever. 2) Our politicians are front-men for the actual powers that be and are compensated on a model similar to WWE superstars. In the latter case it's the financial interests of the PTB that will control, not those of the politicians.

Power withers in secret. The history of leaders who tried to do this is getting stabbed by their Janissary.

Now, what happens if the US defaults, even technically-defaults (missing just one payment) and all this "money" held by financial institutions is suddenly "not money"? Or "maybe not money"?

I would expect a majority of US banks to be in FDIC resolution the next day. As bank stocks fall off a cliff, they start taking the rest of the economy with them. Things would rapidly outstrip the existing ability of the system to absorb small crises. It would look like Cyprus in 2008.

The effects of a technical default will be more insidious. It's unlikely to prompt a sustained pullback in prices. But it will work its way into funding costs in the long term. (We've already seen that over the last decade from the last time the GOP did this.)

https://en.wikipedia.org/wiki/History_of_the_United_States_d...

https://en.wikipedia.org/wiki/BlackRock

> BlackRock, Inc. is an American multi-national investment company based in New York City. Founded in 1988, initially as an enterprise risk management and fixed income institutional asset manager, BlackRock is the world's largest asset manager, with US$8.66 trillion in assets under management as of December 31, 2022.[1] BlackRock operates globally with 70 offices in 30 countries, and clients in 100 countries.[1] BlackRock is the manager of the iShares group of exchange-traded funds, and along with The Vanguard Group and State Street, it is considered to be one of the Big Three index fund managers.[2][3]

[1] https://www.ft.com/content/7c9b2234-c298-4508-b59a-fce49f6bc...

> The Circle Reserve Fund, managed by global investment management giant BlackRock, added $8.7 billion in overnight repurchase (repo) agreements

i think blackrock already had a treasurer?

also is this jeremy allaire as in coldfusion?

Circle didn't always use BlackRock. The "someone" is Circle. Maintaining a mix of Treasuries and repos is standard treasury management. I don't see a link between this rebalancing and the debt limit fight.

It's a manageable risk, so it's managed. That's risk management. (Repos also yield more than Treasuries. Again, this probably has nothing to do with the debt limit.)

I wonder if the US will be in a similar position in 30 years or if the debt to GDP ratio and the USAs spending. I see people say all of the time it doesn't matter because "it's not like household debt" but I fail to see how it doesn't catch up to the US eventually.

Maybe correlation != causation here though and the decline of Japan's dominance in the stock market has nothing to do with their debt to GDP ratio.

Why focus solely on the state's deficits? To me, this is exactly the situation we currently have with housing - asset inflation for the past few decades has outstripped real growth, and now housing debt/rent is consuming an ever-growing amount of newly generated wealth.

(The debt/rent payments go to someone else, but the payments on sovereign debt do so as well)

https://hbswk.hbs.edu/item/did-pandemic-stimulus-funds-spur-....

This isn't what happens when a reserve unexpectedly currency collapses. The ensuing capital market collapse causes bank failures and depression.

To be clear, we're nowhere close to that. The United States isn't going bankrupt, it's heading towards technical default. Nobody questions its ability to pay, just its willingness to do so on time.

This is not a statement that will age well.

I'll stand by it. Ability to pay asks if the U.S. government has the ability to tax its population or incur inflation to meet its domestic-currency denominated debts. Anyone who thinks that's a plausible concern over the next 10 years is nuts. Anyone who is thinking about that as a risk factor over the next 25 years is already extremely comfortable.

Its just a matter of what deal is made and when

This is a fake crisis! The market freaks out and sells into the fear, then buys on the solution

Meanwhile, institutions do the opposite - they buy into the fear and sell on the solution

Its all engineered once every two years or so to make a fake buying opportunity

Frankly for most people reading HN, you would be better off if there was a true legit crisis, it might actually set in motion legit change that would allow you to buy into the system on better terms

Neither controls the process. They have strong influence over it. But not enough to definitively stave off chaos.

The only guarantee will be them voting to end their hostage crisis.

The "debt ceiling" as we see it is always going to be increased as needed.

If Democrats start doing that, I’ll criticize them as well but they don’t.

It’s hypocritical political brinksmanship of the worst sort that hurts the average American worse than basically any other decision congress can make.

By trying to let the Republicans in Congress off the hook for this you enable them to keep doing it until the idiot faction of their party truly runs us over the cliff one day.