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The Rise and Rise of the US Debt Ceiling

The US debt ceiling is a big deal. But before we get to it, let’s discuss the underlying problem!

It’s been more than 50 years since the gold standard was abandoned by most countries. In the USA, it happened in 1971 when the Nixon government acknowledged that there was far more paper money floating around than there was gold in Fort Knox to redeem it.

Let’s just face up to one fact… a dollar is only worth a dollar because we’re prepared to accept it as so. But that’s only because we continue to ignore reality.

How Inflation Impacts the US Debt Ceiling…

Consider this: One dollar in 1971 would have bought the same groceries as it takes $7.45 to buy today! Simply put, the US dollar has been impacted by an average inflation rate of 3.94% over those same 52 years (1971 – 2023).

So is a dollar really worth a dollar?

Now let’s look at the US debt ceiling. As the following graph shows, the growth in US Federal debt has far exceeded inflation:

The rise and rise of the US debt ceiling

Who’s to Blame for the Rise and Rise of the US Debt Ceiling?

Successive governments – both Republican and Democrat, have continued to splurge at levels that would have bankrupted any household or business.

They have funded the expenditure by borrowing – from it’s own citizens and foreign investors including other countries.

That debt incurs interest. That interest adds to the federal debt because further borrowing occurs, not just for new projects, but to pay the interest bill!

Is There a Solution?

Not one that US citizens are going to like! Rampant inflation is one solution. The higher inflation goes, the less the dollar is worth making it cheaper for the government to repay both the interest and the capital on those loans.

The alternatives are either higher taxes or severe austerity measures such as those imposed on Greece after the 2008 GFC. Neither make for happy citizens.

The final option is default. It’s happened many times around the globe. Consider Argentina. Today it’s a third world economy with a current (April, 2023) annualised inflation rate of 108.83%. That is not a typo! And yet, up until the mid-1970’s, Argentina had a thriving, first world economy and culture!

In my opinion, US default is inevitable. It’s just a matter of time. It will happen when we stop believing a dollar is a dollar!

What do you think? Inevitable or can the American government continue to borrow it’s way into the future?

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