As readers know, the only way the US government can really “run out of” money is if we decide to. That means our politicians have to essentially shut down the shop. After all, there is no such thing as an autonomous issuer of currency who has endless supply of that currency being able to not produce that currency. And since all of our debt is denominated in a currency that we can create out of thin air there is no such thing as a traditional insolvency constraint (as in not being able to make a debt payment). So, aside from the other ridiculous reasons for a debt ceiling, the most glaring should be the one that is the most obvious (and the one that escapes most people).
Of course, that hasn’t stopped the political grandstanding in the last few weeks. Lord forbid we waste another perfectly good crisis (since the politicians sure wasted the last one). But what’s so sad about all of this is that the markets are getting truly nervous by this grandstanding. In other words, it’s starting to have a broader impact than just in the halls of Washington.
Equity futures are dipping 1% Sunday evening on the news that the debt ceiling debates are at an impasse. Now, I still have little doubt that a deal will be reached and we’ll all look back at this and just shake our heads, but if this episode doesn’t provide proof of the reasons why this rule shouldn’t exist then I won’t know what else could. The entire debate is beyond ridiculous. It’s Washington at its absolute worst.