Put my dusty morals on the dusty moral shelf
Try to do for others but I care more for myself
My life is like a desert just a lot of sand and rocks
Try and buy some peace of mind and find the store is locked
You can’t get water from a bone dry wishing well
– Bone Dry, by the Cadillac Tramps
Letters of Doom
Treasury Secretary Janet Yellen is known for her eloquent correspondence, which we find refreshing. In a time dominated by text messages, tweets, and animated GIFs, she appreciates the civility of traditional letter-writing.
With her academic background supporting her views, Yellen meticulously crafts letters to Congress, often filled with urgent warnings about impending crises.
Her latest letter, dated May 1, was addressed to The Honorable Kevin McCarthy. It was intended to clarify serious inaccuracies from a previous letter sent on January 13.
In that January communication, Yellen informed Congress that the statutory debt limit of approximately $31.381 trillion would be reached on January 19, urging the need for extraordinary measures to avert a government default.
She had also mentioned, “it is unlikely that cash and extraordinary measures will be exhausted before early June.”
However, despite her best projections, the reality of insufficient federal tax receipts has brought us closer to a potential crisis.
Corrections and Retractions
Yellen made key corrections in her May 1 letter to Congress:
“In my January 13 letter, I noted that it was unlikely that cash and extraordinary measures would be exhausted before early June. After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time.”
Perhaps the temporary furlough of federal workers will grant some leeway, but the situation remains critical.
At the Economic Prism, we empathize with Yellen’s difficult position. She didn’t initiate the reckless spending nor was she responsible for failing to balance the budget. Yet, she finds herself taking responsibility for the shortcomings of Congress.
Yellen’s choice to use letters as a means of persuasion indicates her belief in the power of written communication. However, we suggest that a more impactful approach might be to allow spending to breach the debt ceiling, subsequently issuing a wave of rubber checks. This, surely, would make the message unmistakable even to the most uninformed members of Congress.
Artifact of Failure
The debt ceiling represents the maximum borrowing limit set by Congress for the U.S. government—funds essential for fulfilling existing obligations such as Social Security, Medicare, and military salaries.
It’s important to note that the debt ceiling is a statutory limit established by Congress, not by the Treasury, and is entirely separate from the federal budget, which Congress also determines.
Congress has indulged in extravagant spending, burdening the nation with programs that it cannot sustain. It has introduced numerous tax credits that diminish revenue in attempts to bolster its flawed economic vision.
Ultimately, it is Congress that must raise the debt ceiling to allow the Treasury to borrow the funds necessary for obligations incurred by Congress itself—an astonishing level of mismanagement.
Many argue that the debt ceiling should even be abolished not to give the Treasury free rein, but because it merely serves as a symbol of Congressional incompetence.
If Congress effectively performed its duty, passing a balanced budget, Yellen would not need to compose these urgent letters. There would be no need for this ongoing spectacle, allowing Congress to redirect its focus to pressing issues instead.
Yet, we are skeptical about Congress’s capability to change course, particularly given the system’s benefits for its members.
What Will People Do?
The debt ceiling spectacle produces lively partisan politics, particularly when a Democrat occupies the White House while Republicans control the House.
Last week, the Republican-majority House passed the “Limit, Save, Grow Act of 2023.”
While we haven’t delved into its extensive 320 pages, reports suggest that in exchange for raising the debt ceiling to prevent a government default, the act proposes significant reductions in government spending, including cuts to aspects of the Biden administration’s Inflation Reduction Act.
The bill also aims to cap annual spending growth at a mere 1 percent over the next decade.
Of course, Democrats controlling the Senate have dismissed the bill outright, and President Biden has indicated he would veto it. Are you enjoying the drama?
The issues of debt, persistent deficits, and the debt ceiling are phenomena that have been decades in the making.
Over the past nine decades, large segments of the population have increasingly relied on government assistance for their livelihoods. The situation has spiraled out of control.
Unfortunately, balancing the budget has become politically unfeasible, and a federal budget surplus to pay down the debt seems like a distant dream.
Instead, Congress will likely push toward a challenging conclusion—one that is approaching far more quickly than many realize.
This circumstance raises vital questions. We conclude with one pivotal query, followed by several derivative ones:
What will people do?
What actions will they take when the expectations, promises, and entitlements that the government has fostered from the New Deal to the present crumble?
The answers may depend on how committed an individual—or even an entire generation—is to the existing system.
- What will aging Baby Boomers do when they realize they face a Montreal Screwjob, leading to budget dinners of canned tuna?
- Will Gen Xers simply withdraw and embrace a life of self-sufficiency?
- Will Millennials, known for their outrage, take to social media first, then to the streets? Will authorities respond when called?
- Lastly, will disillusioned Gen Z pause their leisure pursuits to take on practical responsibilities?
- And what will each of us do?
Like it or not, these pressing questions demand answers. The consequences of failure make it imperative.
[Editor’s note: If you appreciate this article, please Subscribe to the Economic Prism.]
Sincerely,
MN Gordon
for Economic Prism
