The federal debt ceiling needs to be raised. Again. The White House says it won’t negotiate with Congress over raising the amount of money the US government can borrow, and Congress has not passed a normal budget since 1996. In the latest episode of the Drill Dow podcast, Peter and Eric welcome financial commentator and investment manager David Bahnsen to talk about big debt, big government, big mistakes, and why he still believes there is hope.
Last week, Secretary of the Treasury Janet Yellen notified Congress that the United States Government had officially reached its $31.4 trillion borrowing limit previously authorized by Congress. Yellen further emphasized to lawmakers that “extraordinary measures” would be taken to keep the government running. She then implied that Congress should raise the debt limit to “protect the full faith and credit of the United States.”
Congress hasn’t passed a full budget bill since 1996. Instead, they pass an omnibus bill, which maintains current spending priorities and amounts. Federal spending is on “autopilot,” as Peter calls it. Congress’s failure to pass the required appropriations bills and instead agree to “continuing resolutions” means there’s never a good time for spending priorities to be changed, cuts made, and money reclaimed from useless, wasteful projects. The budget becomes a fiscal zombie.
Peter likens the White House position of refusing to negotiate to get an increase in the debt ceiling to a husband being told by his wife that the credit cards are all overdrawn and responding, “We’re just not going to discuss this!”
Bahnsen, who runs a portfolio management organization, is as distressed by this as anyone. “As a fiscal hawk and a lifelong movement conservative,” he says, “I hope my fellow Republicans will not be mad when I say that we should not grow the federal debt by $7.8 trillion when we get our people in office.” Bahnsen understands that the current divided government doesn’t offer much room for hope. “We don’t have the power to do this [now]. We don’t have the White House and we don’t have the Senate.” His long-term hope is for a balanced budget constitutional amendment.
Eric adds some depressing statistics. During his eight years in office, President Obama grew the debt by $8 trillion. Trump managed to increase it by $7.8 trillion over his four years. And Joe Biden has raised it by $4.5 trillion in only two years.
Republicans like to be fiscal hawks and talk tough on the budget, but they have had no success. Peter asks him, “Is it their methodology?”
“It’s their methodology, and their hypocrisy that undercut their message,” Bahnsen replies. As a money manager, he does not believe the debt level has really affected the stock market, but the threat grows each time the federal government assumes additional debt, which crowds out private investment, slows growth, and weakens faith in the US dollar internationally.
“A loss of investor faith in the U.S. to pay its debts could spur a deep selloff in Treasury bonds, which could, in turn, cause chaos in financial markets, lift interest rates and raise borrowing costs on U.S. debt. Missed payments on other U.S. obligations, including on Social Security benefits, could also cause economic pain across the country, as the Wall Street Journal recently put it. A government default on its debt would create a lapse in the $90 billion monthly Social Security payments made to 65 million recipients, according to the National Committee to Preserve Social Security and Medicare. IRS refunds after tax season could also be delayed.
These sorts of predictions are what happens when Congress does not budget responsibly, and the threats of imminent financial collapse drown out the rational need to cut spending instead of taking on additional debt that future generations of Americans will have to assume responsibility for paying.
Little attention is so far being paid to what House Republicans want out of the debt ceiling negotiations. House Republicans have said that they want spending cuts to coincide with a deal on the debt ceiling which they hope lead to a lower federal budget and less waste. House Speaker Kevin McCarthy (R-CA) is pressing Democrats to negotiate the nation’s debt limit. McCarthy, whose election to the speakership was fiercely contested by budget hardliners in his party, is under pressure to produce fiscal reform.
At the Government Accountability Institute, we understand that the status quo works for those currently in power, Republican or Democrat. Polls of the American public consistently show they believe the government spends too much. But no one wants to make the tough choices about what to cut. Bahnsen agrees.
Politicians are just reflecting that lack of specificity, as Peter notes. Bahnsen cites a Bible verse: “The people wanted a king.”
Peter suggests across-the-board cuts as one way to spread the pain. Could everyone agree to a 5% cut across the board?
Bahnsen says he would prefer to prioritize the things government does well, such as defense, from the things it doesn’t do well, such as social welfare spending. But he understands that what is possible these days is merely what is politically palatable. An across-the-board budget cut might have a chance of stemming the debt tide.
The DrillDown encourages listeners to check out Bahnsen’s new video series on economics, available on his website, NoFreeLunchEconomics.com.