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Failure to raise the debt ceiling needn't cause a government collapse
Nov 23, 2021 1 min, 19 secs

Failure to raise the debt ceiling needn’t cause a government collapse.

Americans have their noses to the window of another crisis — the periodic Congressional drama about the federal debt ceiling.

If the ceiling is not raised, we are warned the federal government will default.

But the store beyond the window is an illusion — the horrors of a cashless government only materialize if the Biden Administration and Federal Reserve will it so.

It’s required to pay for programs and commitments already in place, and if the ceiling is not raised, social security benefits won’t get paid, the Navy would be stranded at sea and so on.

If Congress does not raise the debt ceiling, the Treasury will have money—just not enough for everything.

With interest on existing debt paid and federal spending forced into balance, the Treasury can issue new bonds to replace those coming due as it always does.

Alternatively, the Federal Reserve could buy up expiring debt and fund those purchases by selling Treasuries on its balance sheet, having maturities further out in time.

government can print money to pay its obligations, the real risk is the debasement of the currency through overspending, enabled by the Federal Reserve, and inflation.

Majority Leader Mitch McConnell and Republican Senators should agree to increase the federal debt ceiling by just enough to permit a federal deficit of $1.3 trillion as the CBO projects for current law—not a cent more.

That may require a government shutdown to get the job done but unlike the 2013 affair, Republican actions properly explained could be a political asset.

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