It’s time to talk about U.S politics (again), specifically the U.S debt ceiling, the legal limit of the quantum amount that the U.S government is allowed to borrow, above which it shuts down or defaults on its debt obligations (or both).
Firstly, let’s get into the numbers. The current limit is 31.4 trillion USD – an astronomical amount.
The human brain battles to comprehend numbers at this scale. We understand Millions, and some people understand billions, but beyond that we are simply dealing with added zeros.
So let me put it another way to help us understand the scale of the problem.
There are 86 400 seconds in a day. No problem there, it's simple 60x60x24=86 400. An easy enough number to understand. A million seconds …no problem, roughly 11.5 days.
Here’s where things begin to get seriously eye bulgingly interesting because a billion seconds is equal to around 32 years….most of us will live for around 2 billion seconds. (use them wisely)
A trillion seconds……..32 THOUSAND years
31.5 trillion seconds………almost 1 MILLION years.
Printing 31.5 trillion USD in 10 USD notes would require about 126 BILLION trees. Planted side by side you would need the area the size of Texas to do this. Don’t ask me how I know this …(thanks chat GPT)
The absolute scale of debt is simply unimaginable on any normal scale.. yet here we are contemplating how and when US congress will raise the ceiling, thus escaping a default that will send the world’s economy into a catastrophic downward spiral. In fact, that’s too kind….off the bridge without a bungee cord would be a better analogy.
I think it’s safe to say that this debt will never ever be repaid in the traditional sense.
Now some technicalities.
Since 1960 the US congress has raised the debt ceiling 78 times, and the Government has actually been shut down for a few weeks once or twice in the past.
This process has in the past (pre 2000) been quite collegial, with a bit of haggling here and there. But in the past 15 years U.S politics has become rather fractured with Democrats and Republicans moving further and further apart on policy issues. Right now the Republicans want deep spending cuts in order to agree raising the ceiling. The Democrats want more social and infrastructure spending. It remains to be seen how and where, and if, they can meet in the middle.
As far as global economic fortunes are concerned this is now THE Central issue.
If they cannot agree, and there are some politicians pushing the envelope, calling for a turning over of the Monopoly board, things will get very scary.
As described in previous postings, the entire global economic system is predicated on the USD as global reserve currency.
An absolute default will result in carnage and turmoil in the financial markets, sending equity markets and other asset classes (except precious metals) into a tail spin not seen since the Great Depression.
Currency values will change immediately as the world tries to figure out a new system.
Unemployment in the US would rise exponentially and regional conflicts will spread.
I am not prone too hyperbole – but I’m sure you can understand the depth of the problem, even if we struggle to comprehend the scale of the quantum.
If they do reach a compromise and solution, the world will breathe a sigh of relief as the can gets kicked down the road.
Of course there are other “solutions”.
The US can simply “print” the money, thus debasing the value of the USD in any case.
There is also apparently some obscure regulation that allows the US treasury to mint trillion USD platinum coins to place with the Federal Reserve as collateral. I’m not too sure about the validity of this scheme, however, I’ve seen it mentioned as a potential “solution”
The next few weeks are going to be very uncertain ….