Here’s a fun fact, one that every child from three years old and up who gets an allowance clearly learns, one that’s made explicit in any high school basic economics class, and one that’s driven home in junior college and college Econ 101 classes: when you spend more than take in, you owe the difference, either explicitly by borrowing separately to make up the arrears or implicitly by the existence of the deficit resulting from spending more than is taken in.
There are two outcomes that are absolutely critical to successfully resolving such a situation: pay the debt that has been incurred, and reduce spending to fit within income in the subsequent years so as to not incur that debt again.
So it is with our nation’s Federal budget.
We have, for decades, but especially with the Obama administration’s overwrought response to the Panic of 2008, again during the Trump administration’s overwrought response to the Wuhan Virus situation, but especially with the Biden administration’s deliberate explosion of spending in response to no particular “emergency,” and without any regard for actual Federal intake under its Grove of Money Trees Modern Monetary Theory foolishness. This is coupled with a statutorily set debt limit, a limit that stops the Federal government from borrowing at all when the amount of debt already incurred reaches that limit. The bar on further borrowing forces a complete stop in spending above current Federal income—which represents a significant spending cut.
Those spending cuts include not paying on existing Federal contracts, reductions in or complete halts of welfare program payments, reductions in Social Security and Medicare payments, and reductions in payments on Federal debt, the latter which would be reductions in principal payments. Payments at least of the interest owed are Constitutionally required, which especially drives reductions in or complete withholding of any or all of those other payments in order to be able to make the debt interest payments.
Which brings us to the Federal government’s only solutions to the current debt ceiling crisis: pay the debt and reduce spending to fit within Federal intake in the subsequent years. These must be done together, or we’ll just keep needing to raise the statutory limit on Federal debt accrued.
That, in turn, brings us to the current situation vis-à-vis debt and spending. For months Republicans and Conservatives in the House have sought negotiations with President Joe Biden (D). (Republicans and Conservatives in the Senate have been remarkably silent. Some of that is driven by the Constitutional requirement that revenue and spending bills must originate in the House, but some of it, also, is driven by the timidity of those Senators.) For months, Biden has refused to negotiate, refused to talk with House Republicans and Conservatives at all.
Lately, Speaker Kevin McCarthy put forward a bill that would raise the debt ceiling by enough to support excess spending for a year while clawing back various appropriated but unspent monies, cutting spending in other areas, and capping non-defense discretionary spending at 1% growth for each of the next 10 years. Associated with that is a proposal to use that year to negotiate serious spending reductions for the next budget year and subsequent years.
Biden has ignored the proposal. Biden’s stubbornness—a stubbornness that is born of the man’s ego-driven pride—is threatening our nation with default on our debt. Such a default will be Joe Biden’s doing, and no one else’s.
McCarthy wants a different outcome:
…Biden [to] return to the negotiating table for debt ceiling negotiations….
I think as president and the leader of the free world, this is one of the problems. We have challenges around this country, around the world. He needs to show leadership and come to the negotiating table instead of putting us in default. This is risky, what he’s doing.
Biden needs to get past his ego and stoop to negotiating.