{"id":7079,"date":"2023-05-11T01:37:09","date_gmt":"2023-05-11T05:37:09","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/the-debt-ceiling-isnt-about-numbers-but-psychology-and-thats-the-problem\/"},"modified":"2023-05-11T01:37:10","modified_gmt":"2023-05-11T05:37:10","slug":"the-debt-ceiling-isnt-about-numbers-but-psychology-and-thats-the-problem","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=7079","title":{"rendered":"The Debt Ceiling Isn\u2019t About Numbers But Psychology, And That\u2019s The Problem"},"content":{"rendered":"
\n

People far wiser than I have gone on at length about the debt ceiling\u2014the limit of how much the U.S. can borrow to pay for what it has already committed to spend. Treasury Secretary Janet Yellen warned of an \u201ceconomic catastrophe,\u201d possibly as early as June 1.<\/p>\n

Without more money or borrowing, it would \u201cdrastically reduce the amount of spending, would mean that Social Security recipients and veterans and people counting on money from the government that they\u2019re owed, contractors, we just wouldn\u2019t have enough money to pay the bills,\u201d Yellen said on CNBC.<\/p>\n

That is one correct framing, certainly\u2014money being the key aspect. Not enough to pay for commitments and purchases already made. The same framing continues throughout the political posturing, arm-twisting, and coverage. Republicans want spending cuts, though only in the areas where they always want spending cuts and not increases in revenue sources like taxes on corporations and the wealthy that were deeply pruned in the GOP\u2019s 2017 Tax Cuts and Jobs bill.<\/p>\n

At the same time, President Biden and the administration don\u2019t want to give essentially axe programs they\u2019ve pushed and want the focus on cutting to come after an increase in the debt ceiling\u2014an action that typically never occurs.<\/p>\n

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In a way, though, the framing of money is inadequate to the situation because the debt ceiling debate at its heart isn\u2019t about budgets and economics. It\u2019s about trust and psychology.<\/p>\n

Often you hear politicians and pundits go on, comparing government spending with how a family budget works. Then you hear others say that the two have nothing in common. In a way, though, both approaches are right.<\/p>\n

A family doesn\u2019t have its own currency. It doesn\u2019t control the dynamics of how it borrows. Families certainly cannot borrow indefinitely and survive because they owe debt in someone else\u2019s currency. Make enough in that currency to pay the bills or you\u2019re sunk. It\u2019s a point that supporters of modern monetary theory frequently make. \u201cPrint\u201d more money and so long as you don\u2019t run inflation too high, you can keep things going.<\/p>\n

But when it comes to debt, both governments and families come up hard against the principle of trust. Those who lend the money, whether directly as cash or through the advanced provision of services and goods with expectations of payment to come, have to trust that the buyer ultimately has the resources and the good will to pay.<\/p>\n

What happens when a family\u2019s debt exceeds the ability to pay? First come the dunning letters and calls, then credit gets cut off, collections start, maybe lawsuits. The memory lingers through systems and mechanisms that pass along names of those that sellers feel they cannot trust. Others get the information through credit services, and eventually that family is in a box. It may not be able to get what it needs until it finally begins to pay back what it owes.<\/p>\n

The same dynamic can happen on a national level. Countries borrow, find themselves in financial trouble, spend in currencies they don\u2019t own, then eventually face the reaction of creditors and sources of money. The U.S. does own its own currency, one of the world\u2019s reserve currencies, but still bond holders who have lent money to the government want to get the payments they\u2019ve been promised.<\/p>\n

As Yellen pointed out, also Social Security recipients expect to get paid the money they were promised over many years of paying into a system. Companies doing business with the U.S. need to be paid.<\/p>\n

Miss payments on any of these because the country doesn\u2019t have the money and the situation is a default. The truth is that no one knows exactly what would happen in a practical sense. There is speculation, like domestic and international credit markets seizing up, massive losses of jobs, maybe a recession, or possibly a depression, the likes of which no one living has ever seen.<\/p>\n

But, again, that\u2019s measurement in money. Take out a tape measure marked in trust and the results are likely that no one ever trusts the U.S. again. Well, at least for an incredibly long time. Because we\u2019ve become untrustworthy.<\/p>\n

Threatening a default as a way to lower spending? Absurd. That should be done in calmer moods, but neither major political party has shown practical interest. The true treasure that is being threatened by politicians who want their way as part of a dance to gain and keep power is the good word of the U.S. Once gone, it won\u2019t come back.<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

People far wiser than I have gone on at length about the debt ceiling\u2014the limit of how much the U.S. can borrow to pay for what it has already committed to spend. Treasury Secretary Janet Yellen warned of an \u201ceconomic catastrophe,\u201d possibly as early as June 1. Without more money or borrowing, it would \u201cdrastically […]<\/p>\n","protected":false},"author":1,"featured_media":7080,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-7079","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","tag-featured"],"yoast_head":"\nThe Debt Ceiling Isn\u2019t About Numbers But Psychology, And That\u2019s The Problem | iFintechWorld<\/title>\n<meta name=\"description\" content=\"People far wiser than I have gone on at length about the debt ceiling\u2014the limit of how much the U.S. can borrow to pay for what it has already committed\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=7079\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta 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