Debt Ceiling

Patrick Boyle is a highly entertaining and truly informative YouTuber.  I do not recall when I first started watching his videos, but it's been at least a year.  As a hedge fund manager, he has some insights on the markets and offers commentary on the investing fads of the day.  His videos on Sam Bankman-Fried are great.  He delivers everything in a deadpan matter of fact manner, which can be quite funny.  He also has a series of videos that discuss portfolio management, options, derivatives, swaps, and so on.  Terrific stuff and recommended.

His latest video discusses the debt ceiling and I find that I disagree.  He covers all the questionable tricks and gimmicks that the government could use (e.g., minting the trillion-dollar coin) to bypass the need of raising the debt ceiling, but comes down to the idea that the only responsible thing is to raise the debt ceiling.  As he explained it, the debts that would be paid are for money already spent, which didn't make sense to me.  Of course, government accounting is intentionally arcane.  I have always likened the debt ceiling to a credit card limit.  If my credit card limit is $10,000 and I reach it, I do not default on my debts if MasterCard refuses to raise the limit to $11,000.  Why is it different for government?  Also, default is a choice.  The government must pay bonds and interest on the debt, but the rest is available for chopping.  Cut the Department of Agriculture, the Department of Education, the Department of Labor, and so forth. Layoffs are not default.  Sell federal lands, cut foreign aid, stop sending billions of dollars to Ukraine.  Again, none of those options would be default.  The threat of default is bandied about to scare the populace and keep the money rolling in DC.  At least, this is how I have long viewed it.

That Patrick Boyle has a different view makes me question my long-held opinion.  At one point, he discussed government bonds.  The debt is based on the face value of the bonds.  I had never considered that.  I received a $100 bond when I was around 10.  It was going to mature in 3 years or so, which sounded like an eternity.  However, I didn't cash it until I was 18.  I was astonished to receive more than $100.  Though the government listed my bond as a $100 debt, it paid me around $150.  This example could make his point that the actual debt is greater than the debt ceiling indicates, which undermines my credit card limit view.

Even so, the debt as a percentage of GDP has rocketed in the past 20 years.  In 2000, the US Debt to GDP ratio was 59.5%.  Today it is 121.5%.  The spending has to be reined in before the interest payments consume the entirety of the US budget.