The Sword of Damocles Over America

Any US government incurs debts. That exacerbates internal conflicts
which finally tear the country apart. The question is not whether
the US defaults on its debts, but just when.

Image by Félix Auvray, Public domain via Wikimedia Commons

The US has again hit a legal limit of $31.4 trillion of national debt on January 19, 2023. Treasury Secretary J. Yellen has again warned Congress a week in advance that the country would reach its debt ceiling and asked either to suspend or to increase the debt limit before June 5, 2023. “Bad” Republicans do not want to raise the national debt limit again and “good” Democrats call that a «political brinkmanship with the debt limit». Newspapers are again sounding the alarm and ordinary people again are not paying attention while politicians again are trying to create financial Armageddon for the country.

This is about economic stability versus economic chaos,” Brian Deese, the director of the White House’s National Economic Council, said on January 19. “We have to not get in our own way. We have to not put this all at risk and jeopardize this by putting the full faith and credit of the United States at risk.

From my point of view, the devastating "economic chaos" will indeed come in June 2023 if the parties do not agree raising the national debt ceiling, but… Financial crisis will happen anyway and not because of the Democrat’s and Republican’s disagreement, but just because it is the natural result of years of wrong economic policies conducted by all (!) US governments of spending more money than the country earns. Just look at interesting “National US debt by year compared to GDP and influential events” chart made by “The Balance”. Mr. Deese’s “economic stability” is the constant borrowing money by US elites, which will also lead to default, but later, and I frankly do not know which is worse.

The choice of the elites in such a situation is obvious: it is the constant shifting of blame to the political opponent and, in the end, the consensus will be "Armageddon not today," since neither party wants to be responsible for the ruined economy.

The political life of the country is polarized and thus the country is paralyzed. The government is dysfunctional since two leading parties are practically incapable of agreeing on almost any issue, even in the face of mortal danger to themselves and the country. This is really a political brinkmanship, or as President Biden said about the latest crisis of this kind in October 2021 “playing Russian Roulette with the economy”. Mr. Biden himself, however, together with other Senators-Democrats prevented Republicans from raising the debt ceiling for the same reasons in 2006. Such a futile political confrontation over the national debt was erupting in 2015, 2013, 2011, 1995-96... Congress has increased the debt ceiling 78 times since 1960, 49 of those increases were taking place when a Republican was president and the other 29 during a Democratic presidency.

Who is right or wrong here? Who is the "good" and who is the "bad"? People in white hats often do the dirty work.

I disagree with President Biden, his viewpoint at debt ceiling problem is biased and partisan. The “political brinkmanship” and “Russian Roulette” playing is the result of inability/ unwillingness of both major parties to make ends meet in the national economy and constant incurring big debts for many years. Both parties demand a reduction of the national debt while in opposition, and both seek to raise the limit while in power. Both parties (not just one!) have brought the country to the current situation where the debt ceiling cannot be raised (because the debt burden will later tear the country apart), and cannot be not raised, because the country will default quickly which will lead to a crisis bigger than the financial world crisis of 2007-2008.

Two major US parties alternate at the helm of the country, but the national debt keeps growing steadily and is now about $31.5 trillion. By the way, the maximum of recent increase in the national debt occurred during the presidency of Republican Trump, from $22.719 trillion in 2019 to $27.748 trillion in 2020.

Incurred debts exacerbate internal conflicts that inevitably tear any union (family, business or country) apart.

The mechanism of borrowing is simple and well-designed. Any US government spends more money than it collects in taxes, so it borrows to make up for the shortfall. Borrowing is done via the issuing of US Treasury securities (or Treasuries) as the alternative to taxation. US Government Treasuries are considered the world's safest and most reliable investments, that’s why many different governments, companies and people around the world buy American securities as a way to ensure that their money is safe (they seem to be unaware about the constant inflation in the US and the US dollar depreciation).

Democrats and Republicans hate each other and they will finally not agree the ceiling of government borrowing somewhen down the road, so the question is not about whether it will happen or not, but just when.
The consequences of the US default will be catastrophic not only for the United States, but for the entire world:
1. There will be delays and ultimately stop to every single government program currently available, the federal funding for individual states including.

2. US Treasury will halt many expected payments and financial aid to US households.

3. Military service members, veterans and federal employees are not being paid.

4. US financial crisis: bank failures and banking panic, turmoil at the stock market, a spike in inflation, unemployment and interest rates, price increase for all goods and services.

5. Global financial crisis: America's creditworthiness plummets down, investors around the world sell off US assets (US Treasuries, US dollars and shares), rapid devaluation of the US dollar and its end of being the world's reserve currency.

6. Retirement savings of 60 millions of Americans (401(k)) and millions of former employees and retirees are not being paid.

7. There will be no Social Security payments for 66 million Americans and 2 million federal workers.

8. The last two points are fraught with social explosion.

It will be a system failure. I don't know when it happens, but it's not that bad though. There will be a financial collapse of the federal government and most likely the breakup of the US into the groups of states. However, the under-federal infrastructure is ready due to the Constitution: every state has its own legislative, executive and judicial branches of power, so the coming crisis is not a tragedy, but a natural process of splitting apart of too large and inefficient structure.

It's interesting to think about where the federal politicians will go after the federal government collapse. All the seats in their home state governments are already taken.

In my recent article I asked many prompting questions to my few readers. The first of them was whether it is already time to save America or not yet.
The answer to this question is unclear until you take into consideration a lot of pertinent aspects and details which will ultimately form your comprehensive vision and maybe correct answer.

However, there is a simpler way. To start that journey you need to answer to the question whether America really needs to be saved. It is a very big question, so focus just at yourself and your family, because you are (!) “America”. Try to formulate subjectively the stage you are (means the US) at now: is it development, stagnation or degradation? And how you and your family (means the US) will look like after 10-20 years?

If you are not sure (or do not care) about the answers you may keep being busy with your everyday routine since everything is basically fine with you, the country is doing well now and thus “everything’s gonna be alright” in the future.

If your inner answer here is “something is wrong”, it means that you are not satisfied with your life in the US for some reason, and it is important because it will bring the problems to the country in the future since you are a part of it. In that case, nothing’s “gonna be alright” with the country, with you personally and America really needs to be saved.

P.S. Apparently, Democrats will agree with Republicans and raise together the debt ceiling somewhen in May 2023 as they have done many times before. However, it is a sword of Damocles, constantly hanging up over the heads of all Americans. Incurred debts inevitably tear any union (family, business or country) apart and the US is not an exception to this rule.

There is nothing more permanent than the temporary. I wonder how many years the US is able to live in a pre-default state.

P.P.S. Dear Reader! I am very much interested in your opinion on the subject of this article. Please, write a comment or ask a question if you want to clarify something.
Igor Chykalov

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