The new year brings new hope and optimism. The slate has been wiped clean. A new leaf has turned over. It’s time to start anew.
If only it were that simple. If only past mistakes could magically disappear as the calendar changes – forever. Wouldn’t it be nice?
But mistakes remain, like unpaid bills. And you have to consider those too.
In the world of money and politics, central planners in Congress, the U.S. Treasury, and the Federal Reserve have made a huge number of mistakes. Generations of deficit spending and currency devaluation have piled up like rotting garbage during a garbage workers strike.
These mistakes don’t go away.
While many Americans are completely immersed in the joys of the holidays, Treasury Secretary Janet Yellen wrote: letter. You might have missed it. Most people did.
A Dec. 27 letter to House Speaker Mike Johnson provided friendly notice of the consequences of past mistakes. That means the Treasury expects the statutory debt limit to be reached between January 14 and January 23.
The Treasury Department will then take extraordinary measures to keep the lights on in the Capitol building and ensure eligibility checks run smoothly. These special measures are necessary to ensure that the U.S. government does not default on its existing obligations, including Social Security and Medicare payments, military pay, and interest on the national debt.
The special measures include diverting funds from the Civil Service Retirement Fund. If the debt limit is raised, funds are restored through new debt issuance. Special measures could also include layoffs of federal employees.
These special measures could give the Treasury several months to give Congress a few months to reach a debt ceiling deal. This is all expected to be a massive fight over how much spending should be cut in return for raising the debt limit.
full faith and credit
Yellen, who will vacate her Treasury post on Jan. 20, her inauguration day, closed her letter by urging: “Congress will act to protect the full faith and credit of the United States.”
It is unclear what Yellen means by “full faith and credit in the United States.” But we assume she is encouraging Congress to raise the debt limit so the Treasury can continue to write IOUs that the U.S. government can never repay.
The debt limit, or debt ceiling, as it is often referred to, is the maximum amount the U.S. government can borrow to pay its existing debt. This includes Social Security, Medicare, and military benefits.
Any pretense to raise the statutory debt limit is pointless. Playing with public employee retirement funds and layoffs of federal workers could buy you a few more months before you hit your debt limit. But the fact is that the money has already been spent.
Remember, the Treasury is not the first agency to approve spending. I’m not someone who can’t balance their budget. We didn’t even set up a fake debt limit in the first place. These are all works of Congress.
Yellen’s letter is too late. The time to control your spending is before your money is spent. Not after.
As one of his first acts as president, Trump could force Congress to raise the debt limit to ensure the U.S. government can meet its existing obligations. But what does this actually do to control your spending?
Congress has shown over the past several decades that it cannot balance the budget.
Another approach is to allow spending to exceed the debt limit and see how people like it when government checks start bouncing.
time to take a walk
To be clear, the debt limit is a statutory limit set by Congress, not the Treasury. The debt limit has nothing to do with the government budget set by Congress.
Congress spends like there’s no tomorrow. For generations, Congress has peppered the country with massive spending programs that the U.S. government cannot afford. Congress is also responsible for any tax deduction gimmick that reduces tax receipts for the purpose of shifting the economy toward false ideals.
And Congress is responsible for raising the debt limit so the Treasury can continue to fund the spending obligations Congress has already committed to. The incompetence is outrageous.
The truth is that the debt limit should not exist in the first place. It’s not because I believe the Treasury should be given a blank check. But rather, the debt limit as it currently applies is nothing more than an artifact of congressional failure.
If Congress had not shied away from its responsibilities and actually passed a balanced budget, the Treasury wouldn’t be in this predicament. Congress could then skip all this action and focus on more important things, like reducing the huge number of dependents receiving unemployment benefits.
The debt ceiling delivers fantasy politics as entertainment. The fact that the need to raise it is coming so early in Trump’s presidency will be a major source of clarity.
With the creation of DOGE, Trump 2.0 talked about controlling government spending. But will you go for a walk?
Does government spending really need to be axed? Or will we continue to borrow and spend like every administration since Eisenhower?
Let’s learn about DOGE in action
DODGE brothers Elon Musk and Vivek Ramaswamy talked about the big game. They promised to cut spending by $2 trillion.
But really, all they can do is identify areas of waste where spending can be reduced. They can’t really cut spending. Again, it’s up to Congress.
Come January 20th, Republicans will take control of the House of Representatives. However, there will be a very small difference of 1 to 3 seats depending on the vacancy. Some Republicans want deep spending cuts. More moderate Republicans want to keep spending flowing.
Johnson’s proposals to raise the debt ceiling will have to strike a balance between cutting too much and not cutting enough. Otherwise it will not pass.
This is why DOGE cannot achieve its goal of $2 trillion in spending cuts.
Washington’s standard operating procedure is to increase debt, increase deficit after deficit, raise the debt limit, and so on. These repeated failures have persisted for decades. And they created a nation of dependents.
For example, over the past 90 years, vast segments of the population have become dependent on government spending programs for their daily bread. Social Security and Medicare beneficiaries. Defense contractor. Welfare dependents. Social services. public works. Washington lobbyist. And many more.
If Trump, Musk and Ramaswamy can force Congress to balance the budget, they will have accomplished the politically impossible. The odds of them facing anything are slim to none.
After much historical debate, it is likely that the debt ceiling will be raised once again. Some spending cuts will be made around the edges. Congress will give itself a huge boost.
But nothing important. There is certainly nothing that can balance the budget or put Washington on a path to paying off its debt.
As a result, by the end of Trump’s term, the national debt will exceed $50 trillion.
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thank you,
minnesota gordon
for economic prism
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