Every budget season, there is chaos in the U.S. as the elected officials bicker about what the nation can and can’t afford, and every so often, there are threats that there will be a government shutdown if the debt ceiling is not raised.
Also every season, despite the disputes and the heated discussions, the debt ceiling gets raised and the United States continues taking ever more debt making many wonder why is the restriction even in place
By 2024, the burden has raised alarm bells as not only is the U.S. already approximately $34 trillion in debt but, perhaps even more alarmingly, various analysts now estimate that the federal government is taking an additional $1 trillion every 90 to 100 days.
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This means that should the rate remain unchanged, the United States will be $57 trillion in the hole in 2023.
If the year–over–year (YoY) growth increase trend between the 2008 crisis and present-day is applied to the current increase in debt, the U.S. burden by 2030 would actually stand as high as $63.5 trillion – 187.16% of the IMF’s projected GDP of $34 trillion for the country.
How the central bankers learned to stop worrying and love the debt
At first glance, the staggering rise in U.S. debt might appear alarming – especially in the context of recent high inflation figures, current reheating inflation figures, and the projected future inflation crisis – but things may not be as dire as one might expect.
Recent history has proven that many of the issues commonly associated with certain monetary and fiscal policies may no longer be as dangerous as they were in the past.
A prime example comes in the form of the staggering amount of dollars created during the COVID-19 pandemic which would at first glance appear like a herald of hyperinflation – a crisis that has not, by press time, materialized.
Admittedly, however, the U.S. and the world were hit with a protracted period of uncharacteristically high inflation.
Another example comes in the form of Japan which has, despite boasting a record debt-to-GDP ratio of over 260% and has been heavily burdened throughout the last three and a half decades of the ‘lost decade,’ remained an advanced and fairly stable economy.
One possible explanation for why high debt hasn’t led to the expected outcomes in various countries comes in the form of the modern monetary theory (MMT) – a theory that, in a nutshell, postulates that governments that issue sovereign currencies don’t operate like households and can never run out of money.
As of March 2024, the theory is generally considered to stand on the economic fringes and is not widely accepted.
Still, several historical examples, such as the Italian debt crisis during the 1990s and the infamous comment that “there is an infinite amount of cash at the Federal Reserve” from 2023 hint that at least some elements of MMT may have been quietly accepted.
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