Time is Running Out for Congress

May 9, 2023

I wrote about it last October… and then again this past January.

The government’s complete fiscal ineptitude. The kind of ineptitude that can only come from spending other people’s money.

Source: The Federal Reserve Bank of St. Louis

It’s quite obscene, how Congress — yes, it’s Congress’ job to manage the financial health of the country — could let this happen. Actually “how Congress could DO this to the country” is a better way to put it. 

It makes my blood boil every time I think about it. Unfortunately, what’s done is done. The question now is what are they gonna do next?

Bring on the Political Theater

If you didn’t look at the linked articles, they basically informed you that the US has again reached its debt ceiling. The debt ceiling is the government’s borrowing limit. In January, Treasury Secretary Janet Yellen sent Congress a note warning them that the end was near. 

Last week, on May 1, she sent a newly updated note indicating: 

In my January 13 letter, I noted that it was unlikely that cash and extraordinary measures would be exhausted before early June. After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time.

That deadline may change a bit as tax receipts come in, but she’s pretty much trying to put the Capitol Hill gang on notice — they need to do something quick.

Of course the thing they need to do is extend the government’s borrowing authority — i.e. commit to even more reckless spending so we can pay our bills.

What they will do is a bunch of political posturing until the eleventh hour. (A bit of political theater that didn’t work out so well in 2011 — see below.) 

On April 26 the Wall Street Journal reported:

A day later Democrats answered:

And with that the partisan rhetoric went into overdrive…

[House Speaker Kevin] McCarthy said Mr. Biden is “putting the American economy in jeopardy by his lack of action. Now he should sit down and negotiate.”

…followed by…

House Minority Leader Hakeem Jeffries (D., N.Y.) said that the Republicans had produced not a budget but a ransom note. “Effectively what you are saying is ‘pass our extreme, MAGA Republican bill or else America is going to default,’” he said.

…just in case you weren’t clear on who the bad guy is.

What’s the Real Downside?

Should this childish political nonsense continue and the situation not get resolved, the risk could be serious. I explained to my paid subs a couple months back

Any failure to pay our bills (including our debt) would likely cause chaos in the financial markets. It would cause a sell-off in the Treasury markets substantially increasing the country’s cost of borrowing. (It’s gotten bad enough with the Fed hikes alone.)  A failed auction would be devastating. It could lead to missed payments on Social Security and veterans benefits.

Even dragging on the rhetorical BS for too long could have implications.

In 2011 Congress was late to the game raising the debt ceiling. Standard & Poor’s was unimpressed and downgraded the country’s sovereign debt. Not a good look.

Still they want you to know they are aware of the seriousness of the situation… 

“If we fail to meet this moment, we risk being the first generation in history to leave our children a weaker America with fewer opportunities and a lower standard of living,” said House Budget Committee Chairman Jodey Arrington (R., Texas).

I have news for the chairman: No you won’t — you’ve all been doing that for decades.

Make the trend your friend,

Bob Byrne
Editor, Streetlight Daily