This week’s entry in the uncertainty parade, which has a highly probable, we might say certain, outcome.
Panic At the Disco
Yes, some people are always desperate for attention. That seems to be a primary driver, these days, causing folks to run for elected office.
You can read, just about everywhere, about the impending panic should the US default as a result of the dirty little dance around increasing the US debt limit/ceiling.
Because it has never happened, no one really knows what will happen. If ever there was a fear inducer in our both highly evolved and primitive brains, well, this is it.
I have lost count of the number of people, both clients and others, who are asking me:
How do you feel about the dollar losing its status as a reserve currency (mostly driven by the second question)?
Aren’t you nervous about the debt ceiling?
Shouldn’t I be buying precious metals to protect against dollar devaluation?
Understandable. People, businesses, and governments depend upon interest and principal repayments from the US government or have significant reserves invested un US debt instruments. Lots of businesses depend on revenue from our federal government. There are about 4.5 million people who get their income directly from the feds.
This chart shows the average transaction account balance (basically, checking and savings accounts) by age.
You are reading this correctly. There is $31,500,000,000,000 of US government debt issued at the moment. That number, if converted to time, is equal to 998,858 years, 364,583,333 days, or 8,750,000,000 hours (that’s 8 billion). Should the US stop paying its bills, virtually every country will have cascading cashflow concerns. Unlike financially sound individuals (of which there are precious few), countries tend to have de minimus cash reserves and run out of cash quickly should they either be unable to collect taxes, collect on obligations from other countries, or be able to issue debt instruments.
Is this possible? Sure it is. Everything has a probability. Everything. How probable is the important question?
The DJs
Let’s look at history:
The debt ceiling has been raised 78 times since 1960. That’s an average of 1.2 times per year.
In 2011, the debt ceiling was not raised until 72 hours before the deadline.
The debt ceiling supports paying bills we have already incurred.
Congress created the debt ceiling with the Second Liberty Bond Act of 1917.
The US has never defaulted on its debt.
Three debt ceiling increases occurred under President Trump.
Both McConnell and Biden have recently asserted that the US would never default on its debt.
Now I want to give some thought to who benefits from not paying our bills:
People who are truly self-sufficient, who raise their own food, make their own heat (and electricity if they use it) or don’t need heat, do not use or do not have a powered vehicle, run their own schools, etc. Aside from what you might be able to barter for, you need to be completely self-contained.
Donald Trump, perhaps, politically, by claiming that both sides are a gross disaster (which might be one of the few truths he utters). However, economically, this would be a disaster for his businesses. As someone who has continually skated on insolvency thin ice, with four bankruptcies, my guess is he cannot personally afford this.
Just about nobody else, other than for a really short term political victory. The narrative would dissolve quickly when reality sets in.
So why do we consistently do this dirty little dance? The quick answer is we are human. We motivate our own reasoning. Some more specific thoughts:
Self-aggrandizement. When I’m a blocker of progress, I become important. I get attention - lots of attention.
Heroism. When I put out the fire (that I created), I am a hero.
Rebellion. I have the strength and character to fight the power. I am a rebel, acting in your best interest. You can trust me to rebel against the elite.
Self-enrichment. Say what? Didn’t you just tell me this is probably an economic disaster? Well, probably, it would be. If it actually happened. I can’t say it won’t happen. I can say it is highly unlikely to happen. So, if I am in the middle of this, and can convince some monied constituency that I have influence and will create funding as part of this political, short-term only (as in, do what will get me re-elected), non-strategic process that benefits that constituency, I get moolah. There’s a reason why some politicians become, quite often, substantially wealthier than the US population while in or shortly after leaving office. Certainly, many bring their own money. Just as certainly, many build significant wealth while they are members of Congress and shortly after.
When you can print money, or borrow incredibly large amounts of money and not be accountable for the consequences while you are in what should be an accountable position, what is the incentive to say no? There is, effectively, none, other than the slice of voters you need to get re-elected. With gerrymandered districts, this becomes not quite so hard. With no strategic plan other than to get re-elected, we have no goals to attain. When we have no specific direction, it matters little where we go.
I understand that a basket of clients like ours is easier to manage than someone’s electorate. However, I know from experience that, given no container around the money, spending will expand to fill the space. Our money wiring is such that the great majority of people will choose buy now, pay later. This is normal behavior. The abnormal behavior is setting rules with yourself, and sticking to them, about how you use your money.
So we spend all of our time negotiating for our own projects. We convince ourselves that what we want is the most important thing, and that person Y down the street is asking for something ridiculous. This will happen until we demand, with our votes, that our representatives act according to our best interests. This will happen until we do the hard work to agree on what the big picture should be.
What Music Should They Play?
It took quite an effort to craft this:
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
This too:
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.
Applying these values, which we agreed upon so long ago, to craft a strategic plan for our country is needed to unify how we choose to spend government funds. Doing this should be the first big process, negotiation, and level of of agreement. We barely have any agreement intra-party, much less between them. No wonder we can’t get anything done other than have a big spending fight and then settle it only because we cannot afford not to.
Instead of advocating for your own business, not-for-profit, city, county, tax break, culture, race, gender, or religion, perhaps we could have a strategy above all of that. My bet is that the great majority will agree that our country is wealthy enough that we can feed all of our residents, house them, ensure quality health care, and provide employment. We have sufficient resources to defend our country, too. Pay for Medicare and Social Security? My bet is this could be done: Start over, crafting a spending plan that first pays ourselves as a country, funding food, housing, health care, defense, Social Security, and debt repayment, and then spending the remainder (up to the amount of tax collections). This would quite likely crowd out a lot of unproductive spending. Simple? Sure. Easy? No, of course not.
In the meantime, leaving this dream behind, let us return to the fear of the debt ceiling dirty dance. This will get solved. No one in power benefits from an ongoing impasse. Anyone raging about it in public has their own agenda for doing so. It’s really that simple.
Sundry:
My musical accompaniment today? Daft Punk, Random Access Memories. And yes, I feel lucky. And no, I do not stay up all night to get lucky.
Best Twitter conversation? How to change air filtration at home. Where to find the filter(s), kinds of filters to use, how often, and benefits of being rigorous. Amusing and useful at the same time. Names hidden to protect the guilty…