US debt crisis passes - the debt pile can expand

Janet Yellen - and millions of others - can breathe more easily. The US government was going to run out of money on 5 June, according to Treasury Secretary Yellen. The US Treasury cash balance is extremely low and without an agreement on the accumulation of more debt (by issuing government bonds) the federal government was about to be unable to pay its bills. The world started to tremble - surely Congress would agree to America’s debt ceiling? US national debt is fast approaching $32 trillion. That debt pile has almost tripled since 2009. Since 2001 the US government has run a deficit averaging almost $1 trillion a year. Interest payments now account for almost 10% of the country’s annual budget.

President Joe Biden and the Republican Speaker Kevin McCarthy finally agreed a compromise, which the House of Representatives has approved by 314 to 117. Rebels on both sides are unhappy; the compromise deal involves new federal spending limits and restrictions on low-income aid programs in exchange for an increase in the debt limit, even though it specifies no fresh limit to the debt. Instead, consideration of the debt limit will be postponed until 2025 – leaving this dog's breakfast for the next US President to sort out. The measure now moves to the Senate for its approval before it becomes law. It won't have the backing of Senator Bernie Sanders, who ran for the Democrat nomination as Presidential candidate against Joe Biden.

The bi-partisan deal is of course nothing more than a political trick, passing the hot potato to the next person in the White House. The real problem facing the US is its perpetual fiscal deficit – the failure to squeeze enough Dollars out of its population in taxes to pay for its defense, social security and other mandated commitments. The door is open for America to borrow more, so the immediate crisis is past. But the country is still doing nothing to get its national finances in order.