Plain English with Derek Thompson Econ Megapod: The Debt Ceiling Is Dumb, and the Inflation “Crisis” Might Be Over
Feb 3, 2023
Jeanna Smialek, an economics reporter for the New York Times, and Jason Furman, a Harvard economist and former Obama advisor, tackle the absurdities of the U.S. debt ceiling. They unveil how it's more political theater than effective fiscal management and discuss its historical context. The conversation dives into negotiations from 2013, the psychological tactics of both political parties, and the sustainability of national debt. They also contemplate the potential for a 'soft landing' in the current economy amid rising interest rates and mixed inflation signals.
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Why US Has Debt
- The US debt exists because the government spends more than it collects in taxes, creating an annual deficit.
- Borrowing funds this deficit, accumulating into a large debt.
Two-Step Funding
- Congress approves spending, but a separate vote is needed to authorize borrowing for that spending.
- This two-step process is unusual compared to standard bill passage.
Default Ramifications
- Defaulting on debt means the US might fail to pay back borrowed money or interest (coupons).
- This could trigger a catastrophic loss of confidence in US debt markets.