Trump and the Democrats Strike a Deal to Raise the Debt Ceiling. Both want to See it Gone for Good.

debt ceiling

President Trump and Democratic Party leadership have struck a deal which will see extended provisions made to deficit debt spending up to the end of 2017. The two camps agreed upon extending government funding and the debt limit up to December 8th. Such a scenario will produce a credit cliff by mid December, and force a decision to be made on appropriating a new budget. The new mandate came attached with an initiative to fund hurricane Harvey relief – undoubtedly a convenient measure to further justify the prolongment of more deficit spending. The legislation was passed bi-laterally in both chambers – 316 to 90 in the house and 80 to 17 in the Senate.

Trump has hinted in conversations with the Democrats that he intends to scrap the debt ceiling all together. This would be a dangerous long-term proposition. The raising of available funds would facilitate Trump’s suspect campaign promise of initiating one of the largest infrastructure projects in the United States’ history. The amount of domestic spending that Trump is proposing is staggering, and would add to the tremendous expenses already being appropriated to military and defense spending. These proposed domestic changes to infrastructure and existing military spending would be analogous to the proposed tax cuts Trump also has on the table – a concerning situation, as sources for this additional spending would instantly be called into question.

Eliminating the debt ceiling would not be ideal, to say the least. Doing so would allow for completely arbitrary modes of borrowing and an increased debt bubble through subsequent changes to fiscal and monetary policy. If the United States government indicates that it has no intentions of curbing its debt, then it surely cannot justify making reasonable payments to its creditors if it continues to constantly compound without any foreseeable restraint. Long term projections at the very least would predict an inevitable catastrophe somewhere in the US economy’s futures – through the government’s inability to remain solvent, as well as the consequences associated with prolonged low interest rates in feeding the current credit bubble.

Those in favour of raising the debt ceiling claim moral necessitation in justifying the matter. A failure to do so would mean defaulting on the current debt and creating a residual economic crash which would have devastating global consequences for financial markets and economies. Although technically true, such a scenario would only be feasible if the treasury was not able to borrow in order to meet existing commitments. Such a protocol was enacted in 2013 with the No Budget No Pay Act – so such a scenario is not without precedent. Those against not eliminating the debt ceiling don’t consider the action of curbing spending or cutting waste in order to not have such a large budget and debt limit in the first place.

Trump’s military policies have exasperated the debt issue. By increasing spending allocations toward military and defense, Trump has created a massive block within the budget – thus contributing to the current need to raise the ceiling. Further feeding the military industrial complex is the main angle in that mandate, along with some more reasonable measures in revamping Americas defences after the previous military sequester. The now ever present Neoconservative element within Trump’s administration has been instrumental in many of these new military commitments. Such initiatives have culminated in the new Afghanistan policy – which will surely lead to an expensive prolongment to that never-ending conflict.

Many Trump voters supported candidate Trump’s allusions toward small government, decreased fiscal waste and reforms to the tax code. Now it seems his campaign’s tertiary promises of increased infrastructure spending and healthcare subsidies are coming to fruition more clearly with a new deal struck with the Democratic Party, as well as the Republicans who voted on this latest measure. What lies ahead will surely be an abrupt schism between Trumps current trajectory and his large support from fiscally conservative Americans – who have otherwise viewed his presidency as a conduit to a road toward libertarian principles, pertaining to the government and the economy. Unsurprisingly, all No votes for the policy came from Republicans in the House and Senate.

Trump and the Democrats have struck their first deal. What was previously campaign rhetoric by Ted Cruz and others during the Republican primaries turned out to be partly true. Trump is in fact making deals with the likes of Chuck Schumer and Nancy Pelosi to appease Keynesian economic directives. Although this is merely one event, the significance of it cannot be overlooked in determining where the direction of this presidency will go next. This raise on the debt ceiling is temporary, but given the desire by many to eliminate it all together, this may be a trend in which fiscal policy ought not go – as unlimited borrowing by the treasury will mean a long-term blossoming of the current debt crisis.

 

Sources and References: 

https://www.theguardian.com/us-news/2017/sep/08/congress-hurricane-relief-deal-budget

http://economictimes.indiatimes.com/markets/stocks/news/us-failure-to-raise-debt-ceiling-will-be-disastrous/articleshow/60319188.cms

http://www.zerohedge.com/news/2017-09-06/gold-sinks-trump-congress-agree-3-month-debt-limit-extension

https://www.congress.gov/bill/113th-congress/house-bill/325

 

 

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