Everyone is saying it will be Armageddon if the US doesn’t raise the debt ceiling, because then it will be unable to pay its creditors for some time, which will raise the future cost of borrowing, and then have a giant ripple effect throughout the rest of the economy.
But here’s what I don’t understand. Isn’t the fact that we are *approaching* the debt ceiling already an indication to creditors that “Hey, we can’t pay the debt without borrowing more money.” Yet we’re fine.
Doesn’t that distress signal already basically indicate that we can’t really pay the debt? It would be like asserting “It’ll really damage your credit score if you miss a payment” to somebody… who has paid their last 3 years of payments *with other credit cards.* Shouldn’t their credit *already* be shot at that point?
Why do the people lending the government money see the government any differently? Why is our credit considered excellent when we pay off our creditors with other creditors money?
In: Economics
Don’t confuse Government debt with Personal debt. Those two things are completely different in how they operate.
A lot of what you hear about government debt in the media is usually just scare tactics to equate government finances to person debt as a means to get public opinion onside to curb spending, which usually means justifying slashing programs.
A Government literally has the ability to print money, so worst case scenario a government can print cash to pay it’s debts. That wouldn’t be ideal because it could lead to rampant inflation, but it can do that.
The debt ceiling is an artificial construct put in by the government as a symbolic means to curb government spending. It’s a piece of legislation not a hard line, so it can raised or removed if required.
Also the US government is not in as much debt as people think. Trillions of Dollars is a lot of money, don’t get me wrong. But if you compare the governments income to it’s debt it’s comparable to a person having a large but still reasonable mortgage.
**The US government is constitutionally required to pay its debts**, that’s part of why the credit rating for the US is so good. The US Congress couldn’t choose to default on the debt if it wanted to. Plus those in power understand the economic turmoil that would occur should the US default on debt, so they won’t let that happen.
Should the US government continue to borrow money on mass to operate? well that’s a matter of opinion.
Generally speaking no, there should be an effort towards paying down the national debt but eliminating it completely would be asinine. The entire savings and loans industry is propped up on Government Bonds and government debt is a critical part to how people save money for retirement.
Also government debt is closer to Corporate debt than personal debt in function and form. Most top Corporations are in as much debt comparatively to the US government and that’s considered responsible.
In crisis times like the pandemic one leading economic theory says ‘yes’ the government should borrow money in order to help keep the economy going. That keeps people employed and helps the economy rebound more quickly.
Another economic theory known as austerity says the government should curb spending during a crisis to keep money in the pockets of people and corporations. However this has been effectively debunked as an effective theory as it only serves to make the economic situation worse.
To save money on government spending the real answer is to stop borrowing Trillions to fight wars. The War on Terror is the single largest cause of increased government debt in the past 2 decades.
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