U.S. Default Possible If Biden, Yellen Sleep On The Job: Marketwatch

In a replay of the Obama years, House Republicans are demanding spending cuts to raise the national debt ceiling and President Joe Biden isn’t inclined to negotiate.

Photo Insert: Across cycles of expansion, macroeconomic crises and recession, the national debt grows more rapidly than the US economy.

US Treasury Secretary Janet Yellen is making unnecessary ruminations about a federal default if the limit is not raised, Peter Morici stressed in an opinion piece for MarketWatch.

Across cycles of expansion, macroeconomic crises and recession, the national debt grows more rapidly than the US economy.

The Congressional Budget Office (CBO) projects it will increase to 195% of GDP in 2053 from 98% in 2023. The Treasury could sell bonds and the Federal Reserve print money to purchase as many bonds as necessary to keep interest rates in a range that sustains employment.

In that case, somewhere along the line, America would become much like the UK.

British Prime Minister Rishi Sunak is coping with much higher inflation than in the US, plus union strikes and a health care crisis that would require 110% of GDP to resolve and keep British living standards from spiraling down.

At some point, the UK hits a wall imposed by financial markets, as the budget plans of Sunak’s short-lived predecessor, Liz Truss, learned.

Currently, US entitlements are about 64% of federal spending, interest payments about 9%, and defense and other discretionary spending about 27% — the latter includes everything from the departments of Transportation, Education and Defense to US embassies abroad.

The federal government defaults only if the president and Yellen are not doing their jobs. The debt ceiling must be raised to finance new spending, but past spending has been paid for by the debt already outstanding.

The left and right in the House both have reservations about wartime aid to Ukraine and overall defense spending. Military retirements and personnel practices need an overhaul, but whatever savings are obtained should be allocated to help beef up the US Navy for the threats posed by China and defending Taiwan.

Entitlement reform is where the money is, Morici, an economist, argued.

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