US with problems to raise the debt ceiling... again

[Gyfts]

It's probably in the interest of the US just to open up the new credit card and raise the debt ceiling, because the debt burden is never going to be lowered. It's just best to pretend that Americans are stupid enough to believe they can continue spending and somehow never default on their loans. What's even more scary is the 3.5 trillion in additional spending they want to do, absolute madness.

Well, credit card is a billion dollar industry so US government will definitely not let go of that one, they will continue this even though they know that the economy won't be able to handle it, plus it's hard for them to fall because they're a superpower nation so they know their way around this kind of stuff.

I was being figurative. Raising the debt ceiling is like opening a new credit card account so you can continue taking on debt after your current issuer cut off your borrowing limits. So really, the debt ceiling doesn't mean much because you can keep opening up new accounts and keep borrowing. It also means you can continue to convince the population, and other countries, that you're still good for repayment on the debt when they're just pushing the collapse off.

[leea-1334]

What happens now if US becomes Greece? Can they save themselves?

If the US would end like Greece you wouldn't care about them anymore because everyone in this world would be so deep in sh*** a submarine would be crushed. And don't think gold or bitcoin or having a garden would save you, such an economic disaster would drag down instantly both the Eu and China, then the contagion will spread to every last place in this world and even people who come into cities once a year to buy salt and sell fur would be affected.

I totally agree. Out there we have people thinking they save Bitcoin and when the world ends like they predict, they will be saved. But if USA fails, the world at large will suffer consequences. Maybe having Bitcoin helps a lot but it will not be the saviour.

After all if 1 Bitcoin becomes 1 million dollars but dollars is not the same value as before, then what is the point?

Such stories from people lining up to buy limited food only happened 50 years ago. We should not forget the lessons of our grandparents.

[Silberman]

Correct, the US government has something that no other government has and that is that its fiat currency is the currency used as the reserve currency of the world, this means that they can get away with things that no other government can, they can reach levels of debt that no other country can because if the countries that are holding their currency as a reserve currency try to say anything about it then their reserves can go to dust if the US decides to keep printing more money, however I really think we are reaching a critical point in which it is possible that countries begin to decide to use their reserves, and this could create hyperinflation in the US as we have never seen before as that money finds its way back to the US.

On top of that, the US Dollar is considered as the most stable fiat currency, and many of the countries that don't have their own currency (El Salvador, Ecuador.etc) use USD as default national currency. And this makes the situation even more interesting. The Federal Reserve can print unlimited amounts of banknotes, thereby increasing the inflation rate and then distribute the surplus funds among US citizens. However, those using USD in other countries will suffer from it, because the purchasing power of their savings will go down.

Good point, this is not something that I have thought about but you are absolutely correct, I think in part this is what is motivating the actions that we are seeing at El Salvador, the US dollar is legal tender there as well, but the US by expanding its money supply is also expanding its inflation and exporting it to the countries that are making heavy use of their currency, whether this is done as reserves or as a legal tender, so it seems to me the president of El Salvador is preparing his country for this scenario before it becomes a reality.

[jaysabi]

Again, the US Government has spent more than expected and now has to borrow more to pay the bills. If this was you, this is the closest to an overdraft on your account that a country gets. The problem is that the limit has to be raised by law, and it is not simple to do so in an age of exacerbated partisanship and little wide-angle vision about the needs of the country.

Incredible as it may seem, the US could actually default in its obligations.

https://www.nytimes.com/2021/09/26/business/economy/america-debt-limit-political-game.html

I don't think anybody credibly believes the US would default; it would usher in an instant global financial meltdown and global recession, if not depression.  Default is always a theoretical possibility, but extremely unlikely given the consequences which are well known.  If investors believed it was more than a remote possibility, you'd see deep waves of selling in the markets, not these piddly 2-3% drops. 

[Sithara007]

Contrary to what being posted here, it is the "liberal" wing of the Democrat party that is responsible for the current impasse. The GOP is ready to vote for the bill, but the ultra-left wing led by Pramila Jayapal want the $3.5 trillion bill on welfare to be passed first. They have threatened that they will not allow this bill to pass, unless the other one is tabled first. Despite all that, the media is painting a picture of GOP blocking the bills and bringing the United States closer to a default. Hardly anyone want to talk about Pramila Jayapal, Ilhan Omar and the ultra-leftists who are responsible for the current crisis.

[o_e_l_e_o]

What happens now if US becomes Greece? Can they save themselves?

The main difference is that Greece have no direct control of their own money since they use the Euro. They can't just print more at will like the US can with the dollar, so their only option was sweeping cuts to get their deficit back under control. The US can go the sweeping cuts route, or more likely, just continually raise the debt ceiling and print more USD, but obviously at some point, that become untenable. When is that point? Who knows.

I'm getting confused with all these damn bills.
Isn't the one with the crypto-related stuff the infrastructure bill, that should be voted prior to this one on social spending, the one with 3.5t? So if this doesn't pass the other has no chance of going through, because if the leftist wing doesn't vote on this one of the courses the moderates will drop that one too?

The crypto provisions are part of the $1.2 trillion infrastructure bill. That has passed the Senate and is currently waiting for a vote in the House, which Pelosi keeps delaying because she is not sure it will pass. There is a second $3.5 trillion budget reconciliation bill, which left wing democrats are demanding is passed before they support the $1.2 trillion bill.

Seriously sometimes politics in the US are more messed up than in European countries where having 6-10 parties in the parliament is normal.

It's not so much the split in the parties, but rather the way we make bills. Bills like these are thousands of pages long. Hardly anybody (and probably none of the people voting on it) have read the whole thing. Different people try to sneak in different things to get them passed without due consideration (such as these crypto provisions), and then amending these provisions becomes next to impossible because other Senators or Representatives demand things in return to not block amendments, such as Shelby blocking the crypto amendments unless everyone agreed to another $50 billion in military spending - two completely separate issues which should be debated and voted on separately. And then the bills can bounce back and forth between the House and the Senate for months.

It's utterly insane, but there is no desire to fix it because it allows politicians (both parties) to pass a lot of crap legislation for their own benefit.

Despite all that, the media is painting a picture of GOP blocking the bills and bringing the United States closer to a default. Hardly anyone want to talk about Pramila Jayapal, Ilhan Omar and the ultra-leftists who are responsible for the current crisis.

The leftist Dems are responsible for blocking the spending bills. The GOP are responsible for refusing to raise the debt ceiling. The two things are separate issues.

[leea-1334]

What happens now if US becomes Greece? Can they save themselves?

The main difference is that Greece have no direct control of their own money since they use the Euro. They can't just print more at will like the US can with the dollar, so their only option was sweeping cuts to get their deficit back under control. The US can go the sweeping cuts route, or more likely, just continually raise the debt ceiling and print more USD, but obviously at some point, that become untenable. When is that point? Who knows.

I totally forgot about the euro actually,,, as I have never been there I still actually cannot practically imagine many countries using one single currency when they each have different rates of goods (like in Asia many similar things were proposed but because things cost very differently in different countries it posed a problem for us who should give in, to make price equal).

I always found it strange that US dollar can keep inflating supply but value actually is pretty good.

So for example my father said 1 dollar 30 years ago (I did not even know about money then I guess),,, 1 USD was good for one big lunch at a local store here. And the exchange rate was very small to our local currency.

Today 1 USD still can buy a big lunch, but the exchange rate has blow up to our currency, so we locals struggle with price increase but you could bring the same dollars 30 years ago today and live well, just as that time.

Judging from this, I would say US are unafraid to print more because outside, people still value their fiat more than majority of other countries in the world.

[o_e_l_e_o]

I always found it strange that US dollar can keep inflating supply but value actually is pretty good.

The value is good for you, because you are comparing it against your local currency which has inflated even more than the USD has. Sure, USD hasn't undergone hyperinflation like some currencies such as the Zimbabwean dollar or the Argentinian peso, but it has still devalued pretty rapidly. 30 years ago a Big Mac meal would cost you around $2. Today you can't even get a medium fries for that much.

Judging from this, I would say US are unafraid to print more because outside, people still value their fiat more than majority of other countries in the world.

But yeah, there is a global desire for the US dollar to remain solvent. If it fails, we are looking at a global recession, trillions of dollars of lost value, and hundreds of millions of lost jobs. The US will certainly be "allowed" to rack up far more debt than a country like Greece, but when debt, deficit, federal reserve balance sheet, etc., are all already at an all time high and are all continuing to increase more quickly, you have to question what the end game is here.

[Silberman]

What happens now if US becomes Greece? Can they save themselves?

The main difference is that Greece have no direct control of their own money since they use the Euro. They can't just print more at will like the US can with the dollar, so their only option was sweeping cuts to get their deficit back under control. The US can go the sweeping cuts route, or more likely, just continually raise the debt ceiling and print more USD, but obviously at some point, that become untenable. When is that point? Who knows.

I totally forgot about the euro actually,,, as I have never been there I still actually cannot practically imagine many countries using one single currency when they each have different rates of goods (like in Asia many similar things were proposed but because things cost very differently in different countries it posed a problem for us who should give in, to make price equal).

I always found it strange that US dollar can keep inflating supply but value actually is pretty good.

So for example my father said 1 dollar 30 years ago (I did not even know about money then I guess),,, 1 USD was good for one big lunch at a local store here. And the exchange rate was very small to our local currency.

Today 1 USD still can buy a big lunch, but the exchange rate has blow up to our currency, so we locals struggle with price increase but you could bring the same dollars 30 years ago today and live well, just as that time.

Judging from this, I would say US are unafraid to print more because outside, people still value their fiat more than majority of other countries in the world.

There are several reasons why the dollar still has value and it is impossible to mention them all, however while many people talk about the dollar being printed as if there is no tomorrow the same is happening with all fiat currencies around the world and in many cases the dollar is not being as heavily printed as those currencies, so when that is the case the local currency crashes while the dollar becomes a store of value and still buys what it bought years ago, however another reason is that a great deal of the dollars do not enter the real economy and instead are used to speculate in the stock market or are never used as governments store those dollars as their reserves.

[Sithara007]

There are several reasons why the dollar still has value and it is impossible to mention them all, however while many people talk about the dollar being printed as if there is no tomorrow the same is happening with all fiat currencies around the world and in many cases the dollar is not being as heavily printed as those currencies, so when that is the case the local currency crashes while the dollar becomes a store of value and still buys what it bought years ago, however another reason is that a great deal of the dollars do not enter the real economy and instead are used to speculate in the stock market or are never used as governments store those dollars as their reserves.

I have to disagree. Look at the M1 money supply of the US Dollar. Right now, it stands at $19.6 trillion ($4 trillion in January 2020). On the other hand, the M1 supply for EUR stands at $11 trillion ($9 trillion in January 2020). I don't know whether my source is accurate, but if it is so, then the growth in M1 money supply during the last two years for the US Dollar is just alarming. It went up by almost 5 times. I know that USD is the reserve and trade currency of the world. But does that justify this insane increase?

[leea-1334]

The value is good for you, because you are comparing it against your local currency which has inflated even more than the USD has. Sure, USD hasn't undergone hyperinflation like some currencies such as the Zimbabwean dollar or the Argentinian peso, but it has still devalued pretty rapidly. 30 years ago a Bic Mac meal would cost you around $2. Today you can't even get a medium fries for that much.

This phenomenon is so bad in many parts of Asia in more and more countries already people are happy to accept US dollar even though it is not legal tender,,, I can say in Thailand and Vietnam even you can get a discount on items if you use USD, so it even makes sense for more and more people to hold USD bank accounts (yes, most Asian banks give you the option as far as I know) instead of their own fiat, regardless that it is actually NOT legal tender. Such is the sad state of fiat in this region. India is so proud of their currency but they are as well suffering from inflation you need more than 100 rupees for coffee (less than $1). Nobody uses the coins anymore.

Funny how USD works outside. I checked prices. $2 30 years ago would get you KFC meal (no McD yet in 1990 in my place) AND some change. $2 today still gets you that but no more change.

Local currency on the other hand, it has become over 3x the price.

Min wage has stayed 40 years and wage increase is <1% a year.

when debt, deficit, federal reserve balance sheet, etc., are all already at an all time high and are all continuing to increase more quickly, you have to question what the end game is here.

We ask that all of the time here as well. And economists have answers saying progress is more important and tell us all poverty is going lower and people are healthier and more educated etc.

But what is the worth of "health" and education and longer lifespans,,, when you live in debt forever, we are almost all renting rooms and not houses, and even afraid to have children because we cannot even feed ourselves.

The end game is so disastrous and yet,,, we may all be dead before it happens.

[o_e_l_e_o]

But does that justify this insane increase?

Of course not, but the other option is for the US government to decrease its spending a lot to get the deficit to zero (or ideally, turn a surplus). That means huge cuts across the board to healthcare, social security, the military, education, pensions, transportation, housing, veterans, food stamps, unemployment, etc., with the loss of millions of jobs. Whichever party did this would be committing political suicide for more than a generation. The average citizen doesn't understand the debt or the deficit, and doesn't understand the implications of national debt being ~140% of GDP and rising. But they would definitely understand if the government took away their food stamps, their healthcare, their pension, or their job. Both sides are therefore incentivized to just keep on printing and borrowing.

Min wage has stayed 40 years and wage increase is <1% a year.

Another common phenomenon we are seeing. Wages being stagnant or increasing at below inflation rates, resulting in real terms pay cuts due to inflation. The average blue collar US worker has never had a higher wage in real terms than they had in 1973. Although only being paid at $4 per hour then, that was equivalent to over $23 per hour in today's money due to inflation.

[leea-1334]

Min wage has stayed 40 years and wage increase is <1% a year.

Another common phenomenon we are seeing. Wages being stagnant or increasing at below inflation rates, resulting in real terms pay cuts due to inflation. The average blue collar US worker has never had a higher wage in real terms than they had in 1973. Although only being paid at $4 per hour then, that was equivalent to over $23 per hour in today's money due to inflation.

Yes,,, I have seen all the memes about Boomers who had jobs as waitress and station attendants able to buy nice houses and finish paying them off by the nineties.

It is completely the same here. You could work for the government on very low salary but you would own a house, car, even send kids to uni and finish paying everything off in 30 years and retire on good pension

Now, even with 40 year loans you would need 10% downpayment which is in any case 20 years salary to collect. I know only one or two people in my school who have houses and even that is far away from the city. Us we are all renting until we retire

[kryptqnick]

Again, the US Government has spent more than expected and now has to borrow more to pay the bills. If this was you, this is the closest to an overdraft on your account that a country gets. The problem is that the limit has to be raised by law, and it is not simple to do so in an age of exacerbated partisanship and little wide-angle vision about the needs of the country.

Incredible as it may seem, the US could actually default in its obligations.

https://www.nytimes.com/2021/09/26/business/economy/america-debt-limit-political-game.html

It's questionable, but there's also a reason the US does it. It's something that wouldn't work for any other country in the world, but the US might get away with it. The reason for that is that the dollar is very popular and always in demand, with the US is the #1 economy in the world. So they can borrow too much, but other countries won't pressure them to give away their debts. The can overprint fiat because people all over the world will still believe in the USD and this will protect it against hyperinflation. I think there's still a limit to all this, and if they're not careful (and they're clearly not over the last couple of years), it will backfire hard, but they can allow to do more than anyone else.

[stompix]

Seriously sometimes politics in the US are more messed up than in European countries where having 6-10 parties in the parliament is normal.

It's not so much the split in the parties, but rather the way we make bills. Bills like these are thousands of pages long. Hardly anybody (and probably none of the people voting on it) have read the whole thing. Different people try to sneak in different things to get them passed without due consideration

The process is not different from what's happening here, trust me.
We also have amendments, which are added on the day of the vote and which are voted on the spot, it's not that different.

What I find really confusing is that most in European parties decided on a vote on pro or against and then the who party or alliance proceed to vote like that, exceptions are rare and usually in the 1-2%, but on how it's looking now the entire democratic party seems like being both rulings, opposition, minority, acting as a whole parliament on its own, fragmented as I've rarely seen in my life.
If we compare it with the Netherlands which has about 20 parties and has gone +200 days without a government yet the country's economy was still unaffected, what's happening right now in the US is not even a joke, right out depressing.

30 years ago a Big Mac meal would cost you around $2. Today you can't even get a medium fries for that much.

I'm willing to bet you can get those still cheaper than in the EU  , the exchange rate tells me 4.30$ for the only size that is deliverable.
But I've always argued that it's really not fair to compare things like this, the pressure from a higher population, higher demand for commercial space, increased minimum wages, increased taxes, and regulations are putting a lot of extra costs on some items.

Here is a good example why the numbers might not really show the full true picture, we have milk prices who are on a decline because there is nothing else to be added here, efficiency in production does its job and we have others where demand in housing is putting pressure on the market, you have 80 millions more poeple in 30 years, or with cars, you really can't compare a car from the 70 with nothing extra on it with all the tech even a 10k VW up or I10 has on it.
Not even mentioning oil, let's drop the consumption back to the '90s, where do you think the price would drop?

[o_e_l_e_o]

What I find really confusing is that most in European parties decided on a vote on pro or against and then the who party or alliance proceed to vote like that, exceptions are rare and usually in the 1-2%, but on how it's looking now the entire democratic party seems like being both rulings, opposition, minority, acting as a whole parliament on its own, fragmented as I've rarely seen in my life.

That could be to do with the multiple parties, as you point out. If there are 20 different parties, and you find that the one you are in is making you vote for or against things you don't agree with, then surely you can just up and leave and join one of the multiple other parties which are more closely aligned with your views. In the US that can't happen. If you are not part of the Democratic or Republican party, then realistically you have almost no chance of being elected. If you disagree with the party leadership on an issue, then your only option is to fight against them, since you can't leave the party without "defecting" to the complete opposite side.

you really can't compare a car from the 70 with nothing extra on it with all the tech even a 10k VW up or I10 has on it.

A piece of technology like a car or a phone where you are getting much more than you did 50 years ago, sure, but a Big Mac hasn't changed since the 70s. Actually, that's not quite true - it has got significantly smaller, despite the price continuing to increase.

[Sithara007]

That could be to do with the multiple parties, as you point out. If there are 20 different parties, and you find that the one you are in is making you vote for or against things you don't agree with, then surely you can just up and leave and join one of the multiple other parties which are more closely aligned with your views. In the US that can't happen. If you are not part of the Democratic or Republican party, then realistically you have almost no chance of being elected. If you disagree with the party leadership on an issue, then your only option is to fight against them, since you can't leave the party without "defecting" to the complete opposite side.

A two party system has its own advantages and disadvantages. I would still say that multi-party democracy is much worse. On paper, they claim that it takes everyone in to account and is the most representative system. But look at countries like Israel and Germany. They have a proportional system in place and this means that it is extremely difficult for a single party to get outright majority (unlike those countries with the FPTP system). And as a result they have a ruling coalition comprised of extreme-right, right, center, left and extreme-left in Israel. I would be surprised if this coalition survives for even a single year.

But as you suggested, there is a way to challenge the two party system. The best example is Donald Trump winning the GOP primaries in 2016. He was a complete outsider and he defeated the establishment wing of the GOP.

[stompix]

A piece of technology like a car or a phone where you are getting much more than you did 50 years ago, sure, but a Big Mac hasn't changed since the 70s. Actually, that's not quite true - it has got significantly smaller, despite the price continuing to increase.

The ingredients in the big mac haven't changed in price that much compared to the final price tag, what has changed is the other costs involved and most importantly their share in the final price. I can tell you this from my actual experience when it comes to meat production, although the price of the food for the animals has constantly gone down, so has the mortality rate, their place has been taken by the number of permits and authorizations controls, inspections, and new regulations that come with a lot of costs, not going into details but when you're arriving at a point where vaccinations costs are 1/10 of the entertainment costs for piglets, somebody has to pay.

For any fast food business, the costs have shifted too, the actual costs of the fries and the mac are probably not even 20%, you need to pay workers, you need to have always full staff as a client will start yelling if he waits more than 30 seconds, you have to give far more importance to hygiene, to preparing food, to clean bathrooms and more important rent which back in the past didn't matter that much, now it's one of the main cause killing business after business.

Let's compare what was need to open a franchise and run a fast food in the '70s and what's required of you now.
Every single thing has changed its cost structure if we would still make everything as we did in the past we would be seeing totally different price to wage ratios.

[DrBeer]

Again, the US Government has spent more than expected and now has to borrow more to pay the bills. If this was you, this is the closest to an overdraft on your account that a country gets. The problem is that the limit has to be raised by law, and it is not simple to do so in an age of exacerbated partisanship and little wide-angle vision about the needs of the country.

Incredible as it may seem, the US could actually default in its obligations.

https://www.nytimes.com/2021/09/26/business/economy/america-debt-limit-political-game.html

This is a right and a "feature" of the US budget - in fact, there is no limited opportunity to expand its "financial abyss" without harming its economy. Firstly, there is a need, and secondly, there is most likely an understanding of the global, systemic, and, which is very important, protracted crisis in China, which means the return of the "scales" of the US position in the world market, to its previous positions. You can count and shout for a long time about the US national debt, but the funny thing is that, in general, the US economy "contains" the whole world, and not the "culprits" of printing money ...

[theymos]

I was hoping for some serious fireworks, but I expected that they'd reach some sort of deal before the deadline, and it looks like they will, at least for the next 2 months.

The game theory of the situation prohibits a default of more than a couple of weeks at the absolute most, and any default at all is always unlikely. If a default happened, very quickly the "bodies would start to pile up", so to speak, and the pressure would just continually build for the ceiling to be raised. Everybody would be running around with their hair on fire, with the temperature going up and up and the fire spreading more and more, and there'd really be no way to end it except for raising the debt ceiling. In this sort of situation, it's certain that either 10 Republicans would flip or all 50 Democrats would kill the filibuster: raising the ceiling is a foregone conclusion, one way or another. And everybody knows all of this, so the threat of default just isn't very good leverage.

Maybe McConnell would've allowed a default to last a few hours -- just long enough to create a loud but ultimately meaningless crisis and blame it on the Democrats --, but I actually think that he would've been the one to flinch first if the Democrats had been willing to call his bluff, and he wouldn't have allowed even a brief default. This being the case, it was skillful for him to get even the minor concessions he got.

Isn't the one with the crypto-related stuff the infrastructure bill,

They both have crypto-related stuff. The bipartisan bill adds ridiculous reporting requirements. The $3.5T bill isn't finalized yet, but last I heard it removes crypto's exemption from the wash sale and constructive sale rules, at least.