The Debt Ceiling issue will force America to cut back on spending. This is assured. The GOP plan will most likely be accepted by Biden. So there will be no DEFAULT as revenues are ample to pay our interest on the debt. On average America takes in some $380 billion per month in revenue and the interest payment on our debt is only $62 billion. On average we pay some 13.5% of our revenue for interest on the debt.
So a default is not going to happen (for now) but the psychological effect on this issue of a debt ceiling will be serious. America will need to SPEND much less and this will force our government to change their appropriations (spending). As I write we spend some $500 billion per month (say $6 trillion per year) and our revenues are in the neighborhood of $380 billion per month. This produces a huge deficit annually.
Deficits add to our National Debt. America is spending much more than is justified by our revenues (tax receipts). This process of EXCESS spending has been part of our mantra for decades. The clearest evidence of our spending excess is our TRADE DEFICIT. This deficit is currently over $1 trillion. This excess spending is covered up as America can BORROW unlimited funds due to the fact that our dollar is the RESERVE currency on the planet.
America has been spending in excess (for over 50 years) with borrowed funds from our international markets. All this spending is ignored by the Biden administration as their plan is to use borrowed funds indefinitely so excess spending can continue indefinitely. The GOP (the Republicans) have proposed a new spending program which would raise the DEBT CEILING and then restrict spending going forward. Biden is trying to reject this proposal. But the GOP will prevail as they are now in a majority in the HOUSE.
My sense is that there will be NO default in America's debt but there will be a lowing in the spending for the Biden administration. This will produce a recession in our economy later this year. What keeps our economy from collapsing is government SPENDING. The aggregate spending (as all Keynesian economists know) is key to the stock market and to America's prosperity. This will CHANGE when the final Debt Ceiling issue is resolved. America will need to lower its spending and this means a RECESSION is coming.
The Debt Ceiling issue is mostly a psychological issue within economics. American's are used to EXCESS spending to keep their economy prosperous. Our dollar is key to all this and its RESERVE currency status is key. America has relied on the dollar being a global currency for ALL goods and services. This allows American consumers to import goods/services from the entire planet for their consumption. It's really totally unfair to the citizens on this planet. America does not give VALUE for VALUE.
My sense is that there will be NO DEFAULT in our debt but there will be a lowing of spending for the Biden administration. Some programs will need to be cancelled and this will be difficult for our progressives who need NEW spending continually to survive. Our stock markets will also suffer once this Debt Ceiling issue is resolved. I don't think our GOP can appease the progressives as their plan is restrictive and a lowing of spending is what will occur.
Prepare for a RECESSION soon after this issue is resolved. The markets will sense that less money for spending is available and this will produce this downturn in our markets (probably in June or July). America is technically bankrupt but our politicians will KICK the can down the road for now. That is my viewpoint. We actually need a comprehensive plan to deal with our DEBT and SPENDING issues. This is unlikely until the markets CRASH. Think for yourself on all these difficult issues.
I am: Donald B. Swenson, Economist/Philospher, donaldswenson.blotspot.com.
http://kingdomecon.wordpress.com
No comments:
Post a Comment