05-30-2023, 03:58 PM
A lesson from US debt ceiling fight: Don’t leave budgets adrift in the sea of democratic politics
![[Image: US-debt-ceiling.jpg]](https://focusmalaysia.my/wp-content/uploads/US-debt-ceiling.jpg)
US PRESIDENT Joe Biden and his Republican opponents have announced they have agreed in principle to raise the US debt ceiling and avert a default. Is this good news? Yes and no.
Obviously, the agreement will avoid the spreading of a global financial crisis; however, the agreement also reveals the contradiction of having a limit by law (the debt ceiling) which lawmakers can change at their discretion.
This makes the ceiling a weak tool in the fight against irresponsible deficit spending; as usual, normal people are those paying the consequences of such irresponsibility in terms of inflation and unemployment.
The issuing of additional debt usually pushes up the interest rate (because of the higher demand for loanable funds). This has two consequences: on the one hand, the supply of loanable funds rises (savings are attracted by higher interest rates).
- More -
Obviously, the agreement will avoid the spreading of a global financial crisis; however, the agreement also reveals the contradiction of having a limit by law (the debt ceiling) which lawmakers can change at their discretion.
This makes the ceiling a weak tool in the fight against irresponsible deficit spending; as usual, normal people are those paying the consequences of such irresponsibility in terms of inflation and unemployment.
The issuing of additional debt usually pushes up the interest rate (because of the higher demand for loanable funds). This has two consequences: on the one hand, the supply of loanable funds rises (savings are attracted by higher interest rates).
- More -