JUST PLAIN TALK: Debt ceiling blues for the world’s largest economy,

Buz Livingston
Buz Livingston

Walton County recently held a groundbreaking ceremony for the new industrial park’s water and sewer infrastructure. Estimates forecast the project, located just south of DeFuniak Springs, will bring hundreds of new jobs to Walton County. In addition, it is a perfect example of how government spending on infrastructure can spur development.

According to a press release, $3 million of the cost came from the federal government. The balance, $1.7 million, came from the Triumph Gulf Coast’s BP settlement. Walton County benefits from government spending, but Congress is playing chicken with the debt ceiling. It’s never wasteful spending when the deal is local, doncha know?

By the time this is published, we should have some clarity. Then, indeed, sanity will prevail, and Congress will figure a way to raise or suspend the debt ceiling. After all, it covers undertakings already approved. Raising the limit would likely pass, except Minority Leader McConnell has threatened a filibuster. His reluctance is at odds with previous actions since Mitch has voted to raise or suspend the limit 39 times. During Ronald Reagan’s eight years in office, he signed legislation bumping the debt limit 18 times.

Before the debt ceiling, Congress had to pass legislation for additional debt. Since it’s inception, the limit has been suspended or raised over 100 times. So it’s not some novel phenomenon, but the failure to act would be catastrophic. The United States has the world’s largest economy, and the U.S. dollar is the world’s reserve currency. As such, our economy has a unique tailwind, the envy of the world. The Fourteenth Amendment to the United States Constitution specifies federal debt “shall not be questioned.” I’m not a Constitutional scholar, but failure to act might trigger legal issues far above my pay grade.

More importantly, we would be choosing not to pay certain obligations. Dr. John Harvey, aka the Cowboy Economist, points out that the United States cannot default on our debt unless we choose. He likens it to someone starving to death locked in a warehouse of food. Any nation whose debt is denominated in its own currency can only default if it chooses. The U.S bond market dwarfs the U.S stock market. Since bonds are debt, there will be the proverbial “Come to Jesus” moment. But I could be wrong.

Failure to act, though, Treasury Secretary Janet Yellen warns, would threaten our economic recovery. She says we could see a spike in interest rates, spiraling unemployment, along with stock valuations collapsing.

Fact: $7.8 trillion of our current $30 trillion debt accrued during Trump’s time in office. Some were for tax cuts; another chunk went to fight the coronavirus pandemic. Government projects, like the 331 infrastructure improvement, spur demand both near and long-term. In 2019, Democrats and Republicans raised the debt ceiling without unnecessary drama. When the coronavirus pandemic crippled the world’s economy, politicians and pundits couldn’t play games. We’re all in the same storm; we’re just in different boats.

You can't always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 West County Highway 30A, M1 Suite 230.