Use the Debt Ceiling Deadline to Stop the Inflationary Wave of Borrowing
For 25 years, I traded US Treasury debt for financial institutions on Wall Street. Over the past 20 years, since September 11, the United States has borrowed a staggering amount of money. First to fund the War on Terrorism, then to bail out the housing sector, and most recently to finance the huge expenses of the COVID pandemic. Like many bond market professionals, I always wondered when the United States would hit the breaking point, when the loan binge would finally turn painful.
Well, that time is now. Since the election of Joe Biden, we are seeing an increase in inflation like we have not seen in decades. Our country borrowed too much for years, but global capital always believed in America’s growth story and willingly lent money on super-generous terms, with no inflationary consequences.
But now, with President Biden and the team serving as managers of USA Inc., that value proposition is fading and fast. Don’t take my word for it; just look at the mad rush to inflationary assets. Gasoline has more than doubled at the wholesale level with futures in gas going from $ 1.07 / gallon to $ 2.30 / gallon since Biden’s election, reaching the highest level prices at the pump since 2014 at $ 3.23 / gallon for the average consumer, and more than $ 4 / gallon in some parts of the United States.
But it’s not just a gasoline story. Commodities generally soar as investors flock to physical assets to try to stay ahead of Biden’s emerging peak in inflation. For instance, Coal prices are up 83% this year, pork prices are up 51% so far this year, while coffee prices have nearly doubled, a staggering 91% since election day . Do not believe the administration’s excuses that these increases are the natural consequences of an economic recovery. Just this week, we learned of the notorious failure in overall GDP growth. The second quarter saw only an overall expansion of 6.5%, well below Wall Street’s expectations of 8.4%.
In normal times, acceleration above 6% would be stellar. But these are far from normal times, and given the harshness of the lockdown-related declines, a growth rate that is nowhere near at least double digits represents a major disappointment. So we are faced with the most toxic combination of all under Joe Biden and a Democratic-controlled Congress: Prices skyrocket due to their reckless spending and borrowing, while the recovery languishes. To put a number in the jobs Current situation, consider that in America today, 145 million Americans are employed now, the exact same number as when Donald Trump was elected in 2016. That number later rose to 153 million. It plummeted to 130 million during the worst lockdown of 2020 and then began an aggressive escalation … until Joe Biden was elected.
Now, with generous incentives for Americans not to work, and the possibility of re-imposing closures that could once again crush small businesses, the workforce is stagnating. Millions of previously employed Americans, the fighters who flourished during the Trump boom, now stand on the sidelines, whether by choice or circumstance.
The situation is dire, and the risks of inflation for an already unstable and polarized American society are hard to overstate.
Rather than settling for the worst outcome, there is an alternative, if Senate Republicans can find some support. The debt ceiling deadline is coming up this weekend, August 1. The United States Treasury can use bookkeeping and accounting tricks to continue servicing our debt for a time, perhaps until October. However, a red line is drawn here, and there is a chance for the Republican Party to finally take a stand in favor of working-class people who are being hurt by inflation. There hasn’t been a real debt ceiling showdown in 10 years, with the last one resulting in a historic first downgrade of the US credit rating by the Standard & Poor’s rating agency. So there are risks in forcing this issue, but there are far greater risks in allowing Democrats to plunge America further into an inflationary spiral of misery.
If the 50 Republicans stick together and refuse to raise the debt ceiling, they can force the White House and Hill Democrats to be honest about stopping the insane level of indebtedness while promising a United States nervous that there will be no more blockades, period.
If we apply a fiscal tourniquet to the borrow and spend craze, and if we empower Main Street to reopen fully and permanently, we will eventually be able to emerge from the massive debt debacle that we have established. But time is running out. The window closes. Will the Republican Party show the wisdom and the balls to use the debt ceiling as a lever to stop the insanity?
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