Insights

Debt Ceiling Risks US Default

Joe Biden came out to the press Monday blaming Republicans for stonewalling to prevent the raising the debt ceiling… But that is simply a lie. Not the part about Republicans stonewalling, they clearly aren’t voting for it. The lie is that Democrats are incapable of doing it without Republicans. Dems have the ability to raise it and go it alone. The truth is that they don’t want to go it alone because it will be used against them in the upcoming midterms. The appearance of bipartisanship would give the Dems the ability to spin a narrative that they did not act in a unitary fashion.  

The political divide in the United states is every bit as bad as it was under Trump and that doesn’t seem to be changing anytime soon.

Biden who called Republicans Hypocrites for not supporting the raising of the debt ceiling was hit back by Mitch McConnell on the Senate floor. McConnell used a quote from Biden himself showing his own hypocrisy: “‘Because this massive accumulation of debt was predicted, because it was foreseeable, because it was unnecessary, because it was the result of willful and reckless disregard for the warnings that were given and for the fundamentals of economic management, I am voting against the debt limit increase.’”

“That was then-Senator Joe Biden in March of 2006. Right before every single Democratic Senator voted against raising the debt limit and made a unified Republican government do it alone.” said McConnell. 

So here we are…. About to default on our debt, a supply chain shortage, a labor shortage, looming inflation, and a global pandemic…. Sure, now is the perfect time to play politics… Why not? 

The sarcasm only comes from a place of Fear, Uncertainty and Doubt (FUD). Because the market certainly has not even begun to price in what a catastrophe a default on the debt would be. As the Brookings Institute stated: “While subject to great uncertainty, … the effects of allowing the debt limit to bind could be quite severe, even if, as is assumed, principal and interest payments continued to be made. If instead the Treasury failed to fully pay all principal and interest payments—because of political or legal constraints, unexpected cash shortfalls, or a failed auction of new Treasury securities—the consequences would be even more dire.”

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