U.S. faces challenges over debt ceiling

BY PHILIP A. RAICES

Unfortunately, last week we hit our debt limit. Since 1960, Congress has acted 78 times to consider either temporarily extending or permanently increasing the debt limit or revising the meaning of the debt limit; 49 times under Republican presidents and 29 under Democratic presidents.

Janet Yellen the Secretary of the Treasury had sent a letter to Congress on 1/13/23 that our current U.S. debt limit was raised to 31.381 trillion dollars on 12/16/21 and was reached on 1/19/23 which was 138% of GDP. In 2013 it was 100% of the GDP.

The Pandemic caused a liquidity crunch with the excessive (virtually created) 8 trillion dollars infused into the market (but not printed). I have read recently that increasing the money supply doesn’t cause inflation. Inflation results when spending grows faster than the real rate of growth of population and production exported including services. The money supply doesn’t cause it, but it is the effect of it, so the Fed has to tweak in both directions to try to keep inflation steady and balanced. It sounds logical as production slowed to an almost standstill during the Pandemic. I have read differing opinions and facts about what causes inflation and this was a different perspective and explanation. If you are an economist, financial whiz, or study the economy what are your opinions and thoughts on this explanation? Here is another analysis put out by the Whitehouse in 2022 that provides additional future projections of our economy, debt, and deficits: https://www.whitehouse.gov/wp-content/uploads/2022/04/ap_3_long_term_ fy2023.pdf

There is an overabundant amount of misinformation, fake news, and just plain lack of knowledge out there from the mainstream media by those individuals who write but don’t know how to do the research to gain the most accurate and detailed data and facts! FYI, only $200 billion was actually printed in 2019 and 2020, and approximately $600 billion physical dollars were printed in 2021 & 2022 from orders provided by the Federal Reserve to the Bureau of Printing and Engraving). See article link: https://www.usatoday.com/ story/news/factcheck/2022/04/14/fact- check-federal-reservehas-balance-sheet-9-trillion/7198368001/. economy and a negative impact on world economies. This would have a major and monumental and mind-blowing tsunami impact affecting American jobs and savings, interest rates, and our overall economy as well as having a massive and immensely negative effect on housing for many years. Moreover, the ripple effect on global economies due to this historic event would also be a loss in the full faith and credit of the U.S. government, and the U.S. dollar, the world’s reserve currency. This would certainly be a tragic and damaging event potentially creating a global depression not seen since the crash of 1929.

The 8 trillion virtual dollars created (confused with physical printing) via treasury bonds as IOUs issued by the government to the banks in exchange for the loans. This injected liquidity into our financial system during the pandemic, along with printing assisting in easing the concerns of corporate America, our economy, and its citizens. Bonds were purchased with cash by the banks (savings and checking accounts) and the government promised to pay back with interest at a future date.

However, overall in my professional opinion, I believe too much was created and given out, especially to those who received more than they earned weekly as well as those with substantial liquidity, who surely didn’t need the stimulus money. However, not having prior experience in dealing with the economic impact and consequences of a Pandemic our government did what it thought best to assist the greatest number of people and businesses. Speed in executing their plan was the necessary evil even with all the mistakes made as well as those unscrupulous entities that took advantage of our dire situation. I am sure if and when there is a next time, and hoping there isn’t, that there will be a more thought-out plan, with checks and balances and a decisive course of action to deliver assistance; so when future inflation does occur, we’ll be in a better position to predict and control it, so it will be less detrimental to our citizens and economy.

According to the U.S. Department of the Treasury, unless they pass a temporary increase to the debt limit to refinance and pay current U.S. government obligations up to June (not authorizing new spending) a default situation would occur affecting paying beneficiaries of social security, government pensions, Medicare benefits, military salaries, interest on the national debt, tax refunds and other debts. This would cause an economic catastrophe and irreparable harm to the U.S.

The Federal debt/GDP is currently around 138%; meaning our government is spending 38% more than it takes in (calculated by The Congressional Budget Office’s latest report at the end of 2022) and says the interest on our National Debt (not including state debts) will go from approximately 399 billion in 2022 to 1.2+ trillion by 2032 and total 8.1+ trillion over the next 10 years; costs doubling from 1.6% of GDP in 2022 to 3.3% in 2032. However, interest rates and their inherent costs to the Federal debt and deficit could grow at an even more rapid and alarming pace going forward having a disastrous and cataclysmic crisis event that would be far-reaching into the future.

The cost of energy increased at a slower rate to 7.3% down from November’s 13.1%; supported by the decrease in the price of gasoline (-1.5% vs. 10.1%) and fuel oil (41.5% vs. 65.7%), probably due to warmer than normal temperatures and ample supplies. However, looking back over the same November-December period costs accelerated for electricity (14.3% vs. 13.7%) and natural gas (19.3% vs. 15.5%).

On the positive side, inflation has slowed for the 6th consecutive month from the high of 9.1% in June to finish 2022 at 6.5% down from 7.1% in November (again excluding the volatile energy and food sectors). Most important, according to the CDC’s National Center for Health Statistics, births

Your Social Security

increased in 2021 and 2022 for the first time in 7 years but this may not necessarily be the future trend of the consistency of past declining rates.

This column will continue next week to include the future of consumer spending, housing, and interest rates, so stay tuned.

Continue to Donate to the Ukrainian Crisis and save a life or 2: https://usaforiom.org/iomsukraine-response/

Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has 40 years experience in the Real Estate industry and has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S.) and in 2022 has earned his National Association of Realtors “Green Industry designation for eco-friendly construction. He will provide you with “free” regular updates of sold and new homes in your town via the Multiple Listing Service of Long Island (MLSLI) or go to https://WWW. Li-RealEstate.Com and you can “do it yourself (DYI) and search on your own. For a “FREE” `15 minute consultation, as well as well as a “FREE printout or digital value analysis of what your home might sell for in today’s market without any obligation or “strings” attached. He can also provide a copy of “Unlocking the Secrets of Real Estate’s New Market Reality, and our Seller’s and Buyer’s Guides for “Things to Consider when Selling, investing or Purchasing your Home.

You can email or snail mail (regular mail) him with your request or ideas, suggestions or interview you for a specific topic and a Q & A for a future column with your name, email and cell number. He will email or call you back and respond to your request ASAP as long as he has your complete name, cell, email and/or full home or business address. Again, for a “FREE” 15 minute consultation, he can also be reached by cell: (516) 647-4289 or by email: Phil@ TurnKeyRealEstate.Com to answer any of your questions and concerns in selling, investing, purchasing, or leasing residential or commercial property.