How Many Times Has The US Raised The Debt Ceiling?
US reaches debt limit (again). Will government default?
The circus is back in town.
Yesterday, the US ran into the maximum amount of money it can legally borrow, aka the debt ceiling.
What happens next?
The funny thing is, this isn’t even about the future…
Back in December, Congress already signed off a $1.7 trillion federal spending bill for 2023.
No, this is about the past.
The money’s already been spent, the debt’s already been racked up. Now is just about shouldering old obligations.
And predictably, Congress is making a huge spectacle out of increasing the limit so government can stagger on.
Will they increase? Won’t they increase?
It’s all just theatrics – of course they’ll keep printing money.
In fact, Congress has raised the debt limit 78 times (!) since 1960.
Why would this time be any different.
HOWEVER, something interesting really is happening…
The US has only defaulted twice in recent history.
On each occasion, the default was precipitated by an extraordinary >20% collapse in BOTH the equity and bond markets.
It’s unusual because equities and bonds are negatively correlated – if both get crushed, this is a massive sign of distress.
Usually a looming depression.
As a result, copious amounts of paper money were then printed and government inflated its way out of the hole.
The first time both markets collapsed was in 1931, aka The Great Depression.
Within 24 months FDR cancelled the public’s gold convertibility and the money printers ran hot.
The second time was in 1969.
Then again, within 24 months Nixon cancelled sovereign gold convertibility – officially ending the gold standard.
Both incidents were defaults in real terms, and what followed were massive currency debasement and a loss of purchasing power for bond holders.
So, guess what’s just happened in 2022?
That’s right, equities and bonds contracted by over 20%.
What could a default look like this time around?
Inflation and loss of purchasing power might be one aspect.
But another might be the unravelling of people’s pensions, i.e. government simply stepping back from old promises.
Paris is already being rocked by a million-man protest over a measly 2-year increase in the standard retirement age.
If history is any indicator, this is nothing compared to what’s coming. How about this for a new deal:
Work until you drop.
Written by Andrew Axelrod
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