Debt Ceiling

Dear Ladies and Gentlemen

«Where there is no vision, there is no hope.»

Adrian shared this quote by George Washington Carver (George Washington Carver – Wikipedia) with us, and it fits today’s weekly perfectly!

Catastrophic and Disastrous

U.S. Treasury Secretary Janet Yellen described the scenario for the economy if Congress would not have raised the debt ceiling by 18 October as «catastrophic» and «disastrous».

You know what, I think «catastrophic» and «disastrous» are the right words; however, not in conjunction with this year’s debt ceiling discussions but with the total amount of debt so far accumulated and handed over to the next generation over and over again.

Debt Ceiling

According to an interview, I read the other day; with Professor Felix Oberholzer-Gee, Harvard University, the USA is the only country besides Denmark with a debt ceiling.

What is a Debt Ceiling?

Investopedia gives us a concise definition: «The debt ceiling is the maximum amount of money the United States can borrow cumulatively by issuing bonds. The debt ceiling was created under the Second Liberty Bond Act of 1917 and is also known as the „debt limit“ or „statutory debt limit.“ If U.S. government national debt levels bump up against the ceiling, the Treasury Department must resort to other „extraordinary“ measures to pay government obligations and expenditures until the ceiling is raised again.» Thus, a debt ceiling that can be lifted all the time probably does not make much sense.

Showtime

Ladies and Gentlemen, this is all part of a political show. This time the Republicans will make it look like Democrats have no fiscal discipline. During a Republican presidency, the same argument is being used by Democrats. The enormous debt is sure to be an issue in the campaign for next year’s midterms, and one party can and will blame the other for the high debt.

Not a Question of Spending

Look, this is not a question of spending or budget discipline whatsoever. Congress has already approved all the spending; that is what it costs to run the United States of America the way it is run. You know what? There is no genuine political dispute about it because the spending was already decided. This is why the debt ceiling will be lifted again and again and again (it has been provisionally increased until December of this year).

Do we need to be worried?

Currently, I do not think so. Any political party, this time the Democrats, can manage the debt ceiling increase without the other political party (theoretically: «ies») this time, the Republicans, if necessary, within the framework of a so-called «reconciliation» with a simple majority in the Senate. Now, reconciliation is a complicated emergency procedure that, as already mentioned, only needs a simple majority in the Senate – which the Democrats currently have by a narrow margin. Republicans know that and will fight and make much noise ahead of next year’s midterms to keep the show going, and yet, eventually, they will agree on lifting the debt ceiling on what will be sold to the general public as a great compromise. Do not let yourself be fooled, Ladies and Gentlemen; in the history of rising U.S. debt ceilings, Democrats, as well as Republicans, have shown great passion in keeping the political show going on.

Today’s Quote

If we keep in mind the quote at the beginning of today’s weekly, one could easily argue that where there is no vision in changing the behaviour of both leading parties of continuing to pursue their particular partisan interests, there is no hope.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth

Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
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Mail: smk@incrementum.li