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 a woman of letters. We like this about her. Because, like us, in a world of text snippets, tweets, and animated gifs, she finds the traditional exchange of letters to be most civilized.
Her academically trained brain — ensconced beneath a white hair shelmet — guides her thinking. With purpose and intent, Yellen puts fingers to keyboard and taps out letters to Congress warning of imminent doom.
Her most recent letter, published on Department of the Treasury letterhead, and addressed to The Honorable Kevin McCarthy, rolled off the printing press on Monday the 1st of May. The objective of the letter was to correct grave misinformation she supplied in a prior letter to Congress.
Specifically, on Friday the 13th of January, Yellen, sent a letter to Congress informing legislators that the statutory debt limit of approximately $31.381 trillion would be eclipsed on January 19. And that the Treasury must resort to extraordinary measures — accounting maneuvers — to delay a U.S. government default.
Yellen also noted in the January 13 letter that: “It is unlikely that cash and extraordinary measures will be exhausted before early June.”
This, of course, was Yellen’s best estimate based on the Treasury’s projection of spending and incoming tax receipts. But, alas, things in life rarely work out as expected.
In this case, federal tax receipts this tax season have come up short. Thus, less cashflow is coming in than Yellen had anticipated. And, as a result, the federal government is just weeks away from going broke.
Corrections and Retractions
In case you missed it, here are the corrections and retractions Yellen recently provided 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 furloughing of federal workers will buy an extra week or two before the breakthrough point. Who knows?
Regardless, here at the Economic Prism, we appreciate Yellen’s predicament. She’s not the one that first authorized the spending. She’s not the one that failed to balance the budget. She’s not the one to establish the phony debt ceiling.
Still, she’s willing to fall on her sword in self-sacrifice for the failings of all of Congress. So very valiant.
The way we see it, communication can take place in different forms. In fact, communication is often most effective when it’s delivered by actions rather than words.
Yellen has chosen, through letters, to prompt Congress to raise the debt ceiling so that it can meet its existing obligations.
We posit that a more effective means of communication would be for Yellen to first let spending crash through the debt ceiling; then, she should write a stack of rubber checks. This would be a form of communication which even a blockhead like Chuck Schumer could understand.
Artifact of Failure
The debt limit, or debt ceiling as it’s often referred, is the maximum amount the U.S. government can borrow to pay its existing obligations. This includes Social Security, Medicare and military salaries.
To be clear, the debt ceiling is a statutory limit established by Congress — not the Treasury. The debt ceiling has nothing to do with the government’s budget, which is also established by Congress.
Congress, for its part, spends like there’s no tomorrow. In doing so, Congress has larded the country over with mega spending programs it can’t afford. It’s also Congress that has passed countless tax credit gimmicks — which reduce tax receipts — for the purpose of bending the economy to its ill-conceived ideals.
And it’s also Congress that must raise the debt ceiling for the Treasury to continue to borrow the money it needs to meet the obligations Congress already committed it to. The incompetence is jaw dropping.
By all honest accounts, the debt ceiling shouldn’t exist in the first place. Not because we believe the Treasury should be given a blank check. But, rather, because the debt ceiling, as it’s currently employed, is nothing but an artifact of Congressional failure.
If Congress didn’t shirk its responsibility and actually passed a balanced budget, Yellen wouldn’t have to write these ridiculous letters. Congress could then skip this whole charade and focus on more important things, like reducing the vast army of dependents that are on its dole.
All this said, we have zero trust that Congress will get its act together. Not when the system has been so great and good to its members.
What Will People Do?
As entertainment, the debt ceiling debacle delivers fantastic partisan politics. This is especially true in situations like now. When there’s a Democrat in the White House and Republican control of the House of Representatives.
Last week the Republican-led House passed the “Limit, Save, Grow Act of 2023.”
We haven’t bothered to read through its 320 pages. But from what we understand, in exchange for raising the debt ceiling, and forgoing a U.S. government default, the act proposes to cut government spending, including parts of the Biden administration’s Inflation Reduction Act.
The bill would also cap annual spending growth at just 1% for the next decade.
Naturally, Democrats, who control the Senate, say the bill is dead on arrival. President Biden said he would veto it. Do you relish the drama?
Debt, deficits on top of deficits, debt ceilings and much, much, more … These artifacts of failure are decades in the making.
For example, over the last 90 years, massive segments of the population have become dependent on government spending programs for their daily bread. It has all gone far too far.
The sad fact is that by now, it’s politically impossible to balance the budget. And there’s not a snowball’s chance in hell for Congress to run a budget surplus and use the difference to pay down the debt.
Instead, they’ll push on to the bitter end. A bitter end that’s now approaching much faster than many people realize.
This prospect stimulates a variety of important questions. Here we’ll end with one critical question followed by several derivative questions: What will people do?
That is, what will they do when all the expectations, promises and entitlements the government has perpetuated from the New Deal to the present go up in smoke?
The answers likely depend on how deeply a person — or generation — is invested in the current system.
- What will aging baby boomers do, for instance, when they discover they’ve been given the Montreal Screwjob and that their retirement dinners will now consist of canned tuna? Will they like it?
- Will Gen Xers give up and walk away from it all and take to subsistence homesteading?
- Will easily outraged millennials first rage on social media and then rage in the streets? When someone calls the fuzz will they bother to show up?
- Will already resigned Gen Z pause from taking recreational bong hits on the couch all day and go rake the yard?
- Lastly, what will you do?
Whether you like it or not — we certainly don’t — these questions will have to be answered. The artifacts of failure demand it.
[Editor’s note: Like this article? If so, please Subscribe to the Economic Prism.]