Heading Toward a Crash with the U.S. Debt Ceiling

The latest estimate by Treasury Secretary Janet Yellon forecasts the U.S. government hitting the debt ceiling — unable to incur any further debt to make payments — as early as June 1. Despite approving increases during the Trump administration, the House has tied this increase to a long list of spending cuts, reducing spending for most federal programs to the levels two years ago, according to NPR.

Disguised as concern for America's fiscal future, the House gambit is taken from classic Republican orthodoxy: cut spending except for defense and lower taxes, ignoring that the latter will actually increase the debt.

There's another dimension to this looming crisis, that of speaker Kevin McCarthy held hostage by the most conservative members of his caucus, forcing him to play a no compromise hand. Such is the price of his power.

Hard to say if rationality will prevail or we'll hit the ceiling and hope for the best. Nonetheless, it seemed prudent to reach out to my representative in the House, Mike Rogers:

Representative Rogers,

I urge you to approve an increase in the debt ceiling before the U.S. government defaults on any of its obligations. A default would be a first for the country, a self-inflicted error with unpredictable consequences for our credit rating and global financial markets.

As Jerome Powell said yesterday, “No one should assume that the Fed can protect the economy and financial system and our reputation from the damage that such an event might inflict.” A default could upend the Fed’s measured interest rate strategy to reduce inflation without incurring a recession.

As you well know, the debt ceiling simply reflects the approved spending of past sessions of Congress, Republicans as well as Democrats. Refusing to honor those debts is like me refusing to pay my credit card bill. The appropriate action for me is to reduce future charges to my credit card. The same holds for Congress.

The increasing federal debt is a longterm economic concern and should be addressed by Congress through its appropriations process. The list of spending cuts recently approved by the House is a starting point for negotiating the fiscal 2024 budget with the Senate.

The current strategy of tying a long list of wished for spending cuts to the debt ceiling in a political competition has way more downside than the outcome of reducing federal spending.