Ray Dalio has published an article that begins to analyze the impact of the debt ceiling on the economy. The first two parts are located here:
- Ray Dalio, The Farce and Consequences of the Debt Limit and the Debt (Jan. 25, 2023)
- A Two-Part Look at: 1. Principles for Navigating Big Debt Crises, and 2. How They Apply to What’s Happening Now (Jan. 5, 2023).
The most current post, Ray Dalio, The Farce and Consequences of the Debt Limit and the Debt (Jan. 25, 2023), begins as follows:
We all know that there is no real debt limit because what is called a debt limit never actually limits the debt. It’s a farce that works like a bunch of alcoholics who write laws to enforce drinking limits, and when a limit is reached, they do a farcical negotiation that temporarily eliminates the limit which allows them to have the next drinking binge until they reach the next limit at which time they go through the next farcical negotiation and continue to binge. I gather that this is the 79th farcical negotiation that has taken place.
Not only does this tragically comical ritual lead most people to be confident that the debt limit will be gotten around, but it also tells us that those running our political system lack discipline or they tacitly agree that binge borrowing is OK. I think it makes clear that the long-term prognosis is for the debt bingeing to go on until a crisis ends this dynamic. However, most people seem comforted that the debt limit won’t trigger a debt default and don’t worry about the debt bingeing continuing. That raises the justifiable questions: Is it a good or bad thing that we are getting around this debt limit? Are high debt levels and high levels of new borrowings that require high levels of government selling of debt assets not risky? I think those are reasonable questions as we have been hearing warnings of a debt Armageddon for decades yet none has occurred.
About three weeks ago I put out a report that was the first of a two-part examination of the mechanics of debt. The first part is about the money-credit-debt-market-economic mechanics and the cycles they create. It explains in simple terms how I believe the mechanics work. In it I describe how both the short-term and long-term cycles work, most importantly the interactions between borrower-debtors, lender-creditors, and central bankers, and the consequences these interactions have on markets and economies.
See the full post at Ray Dalio, The Farce and Consequences of the Debt Limit and the Debt (Jan. 25, 2023).
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.