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The Debt Ceiling Lie

The Debt Ceiling Lie

January 18, 20231242 view(s)

The current U.S. debt ceiling is $31.381 trillion. Treasury Secretary, Janet Yellen, sent a letter to Congress stating that the U.S. debt will surpass the ceiling on January 19, 2023. Like clockwork, the Treasury is again warning about the catastrophic effects of not raising the debt ceiling. The following is a screenshot from the Treasury website. 

In August, Secretary Yellen said the U.S. economy was not a recession. One must wonder why the Treasury website directly contradicts the Treasury Secretary. Does the Treasury think everyone has short-term memory loss, or is it admitting it was wrong? Maybe, since the election is over, it is now okay to call two-quarters of negative growth a recession again when money is needed. It is funny how that works.

The debt ceiling should stop or slow government spending. However, it never does. It is more political theater than an actual budgetary constraint. Every time Congress has voted to raise the debt ceiling. What is the point of having a budget if it is only a suggestion? It is unknown how many times Congress raised the ceiling. There is either a bad joke or a blatant error on the Treasury website. The Treasury website claims the debt ceiling has been raised 78 times since 1960. Several media outlets have repeated the Treasury website statistic. The Treasury claimed the same number with the same language in 2011 and every iteration of the debt ceiling charade since.

Here is the Treasury website quote for 2023:

“Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents. Congressional leaders in both parties have recognized that this is necessary.” 

Here is a quote from a Treasury paper in 2011:

“Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit-49 times under Republican presidents and 29 times under Democratic presidents. In the coming week, Congress must act to increase the debt limit. Congressional leaders in both parties have recognized that this is necessary.” 

In 2011, the debt ceiling was $16.4 trillion. It has nearly doubled to $31.381 trillion. Congress has raised the debt ceiling at least seven times since the 2011 paper. It is still being determined whether the Treasury was claiming 78 times before 2011 because the Treasury only has documents online going back to 2011. An independent research paper from 2018 states that Congress raised the debt ceiling 98 times, meaning the current number is more than 100 times. Every media outlet should investigate why the Treasury hasn't updated the data in at least twelve years. Also, they should report why there is such a discrepancy between independent research papers and unchanged government data. Shouldn't the American people know how Congress manages the debt? 

Either the Treasury is hoping no one will notice the discrepancy between the narrative and the facts, or there is widespread incompetence at the Treasury. What makes more sense? Has the Treasury conveniently forgotten to update its website for decades, or are they lying/hiding something? Neither option instills confidence that the government is a good steward of the People's money.

What does it all mean?

For the next few days, the media will bombard us with images, soundbites, graphics, charts, and reasons the government must raise the debt ceiling. There will be a lot of tension and drama. Advertisers will pay a pretty penny on prime-time news channels for the next few days as the world’s eyeballs watch the drama unfold. The world will pretend there is a serious chance the U.S. won’t print more money to pay its bills. Like always, politicians will cut a last-minute, closed-door deal to kick the can down the road. (Spoiler: the debt ceiling will return in June. Any solution they come to will last less than six months.)  Politicians will say it is not the best deal, but it was necessary to protect the good faith and credit of the U.S. The politicians will blame the other side for failing to cooperate and pretend the R or D behind their name makes them the innocent victim in a corrupt, dysfunctional tax and spending system.  

When a household has budgetary constraints, it makes choices and sacrifices. It may cut out the luxuries like streaming services, gym memberships, and eating out to pay bills. The government does not behave that way. Every time the debt ceiling nonsense comes around, the government is not cutting budget items. Instead, they want a higher credit limit. To their merit, the Republicans are posturing for spending cuts this time, which Democrats have categorically rejected. If it passes the house, the proposed reductions will be dead upon arrival in the Democratic Senate, because it will be a party-line vote.

The debt ceiling will increase now and again in June. Unless the government repeals previous spending projects, Congress will raise the debt ceiling every time this drama comes around for decades. How do I know? The current debt is north of $31 trillion, but the unfunded liabilities are north of $93 trillion. The $31 trillion does not include interest on the debt. Even if the government canceled all unfunded liabilities and didn't create any new spending, the debt ceiling would climb to pay the interest. To cover spending which has already been spent or promised, the debt ceiling should be $124 trillion, more than four times its current level. 

Is Gold the Answer?

President Nixon took the Dollar off the gold standard in 1971. Since then, the Dollars in existence and the national debt have gone parabolic. The national debt was $398 billion in 1971, representing 35% of GDP. The current debt is more than 77 times greater than in 1971, comparable to the 81% purchasing power loss. However, the economy did not expand as quickly as the debt and money supply. $31 trillion represents 123.6% of GDP, meaning debt has grown about four times as fast as the economy. If you consider the unfunded liabilities, the U.S. debt-to-GDP ratio is 495.3%! Would things have gone this far from sanity if the U.S. had remained on the gold standard? Unlikely.

Without an anchor like gold, the Dollar is not money. It is only a fiat currency and a debt instrument. Money has intrinsic value, whereas currencies are means of exchange within the monetary system. History teaches that 100% of fiat currencies eventually failed and went to zero. In contrast, gold is actual money which is why it has endured for thousands of years. If the Dollar survives its debt crisis, it will be the first time in human history that a country printed its way out of debt.

The U.S. debt is unsustainable, so Congress repeatedly does the "debt ceiling" dance. Everyone knows how it will go. Congress only has options if they stop spending. Since Congress spends like a drunken sailor, it will raise the debt ceiling until creditors stop extending credit. When that happens, the Dollar collapses, and it is time for the U.S. to declare bankruptcy. The world will revolt against the fiat currency mentality and want to reset to real money anchored by gold. With so much global debt and paper assets, the price of gold would need to be astronomical to support the system and population.

As discussed, Congress has no choice except to raise the debt ceiling forever. The debt burden will drive the debt ceiling to at least four times the current levels. Every time you hear a talking head say something about the debt ceiling, the correct translation is, "More inflation, wealth destruction, and taxes are coming. The thing gold does better than anything else is protect against inflation. Buy more gold before it's too late." 

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Ryan Watkins, Op-Ed ContributorbyRyan Watkins, Op-Ed Contributor
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