Tuesday, May 2, 2023

The Budget Crisis: Why this time is different .. and why its not

 Soon, perhaps as soon as 1 month from now, the United States will run out of money to pay back our debts. This is called the Debt Ceiling, which means that the United States cannot borrow any more money or issue bonds and we may default on our debts - at lest for a short time.

We hear now that much of this problem is that Biden will not negotiate with the Republicans in Congress. Although he will work with them after the raise the debt ceiling. Which is a no go from Republicans.

Why is Biden refusing to negotiate?

1) The Republicans are trying to extort the government. Simple

2) It should be an easy call. The funds being spent have already been promised via the Congressional Laws. So this is like charging a ton on your credit card and the not paying it, even the minimum amount. Congress has allocated this money but does not want to approve spending it.

2) Before Obama, Congress just raised the ceiling as it was hit. After Obama, the Democrats joined the Republicans in lifting the cap again. This time for all 4 years of Trump. The Democrats were and are the adult in the room regarding this.

3) With President Obama the White caved and negotiated with the Republicans and showed them that domestic economic terrorism worked. President Biden wants to return to a simple approval system that was in use every year since World War I except for when the Republicans blackmailed Obama.

Will we default?

Quite possibly. The Republican caucus has demanded idiotic cuts to medicare, medicaid, Veteran's affairs and medical support, and in fact all programs bar the Military. This includes new money for tax enforcement of the rich - which the Republicans hate.

But, will we default? Maybe. Many in the Republican caucus in congress do not believe the warnings on defaulting. It will be bad. Last time we came close to default, but didn't, credit agencies lowered the US credit rating. Which meant we had to pay even more for the money we borrowed. It rolled into high inflation. If we actually default the economic repercussions will force us deeply towards a recession.

Is this just stupid theater? 

Usually it is. But maybe not this time. It is a dance where the Democrats don't want to default and the Republicans think any bad economic news will benefit them in the 2024 races. Remember they have closed down the government before by not passing a budget. This will be so very much worse. But many of the rank and file Republicans think the government is crying wolf.

We shall see....

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