The debt ceiling in the US and the spending ceiling in Brazil – 05/12/2023 – Rodrigo Zeidan

While the previous Brazilian government tore up the spending ceiling, the Americans may create something very similar in the battle to raise the public debt limit. The proposal, approved in the Chamber of Deputies by 217 to 215 votes, determines that the federal government’s discretionary spending will return to the amount of 2022 and increase only at a rate of 1% per year from now on.

This spending ceiling would be in addition to the debt ceiling, created in 1917 so that the US government could go into debt during World War I (before, any bond issue was determined by the Legislature). Congress retained, however, the prerogative to decide the amount of the debt. At the moment, that threshold is at $31.4 trillion and was reached just a few weeks ago. That is, the US central government is prevented from borrowing money. If the money in the cashier runs out, the result is simple: default. And worse, for everyone from investors to government officials.

In the past, the US government has had to delay wages because of frustrated negotiations to raise the ceiling, but no one classified this as a default, as the Legislature ended up voting to raise the ceiling before the US federal government could not pay interest on the debt or your suppliers.

But what is the function of a debt (or spending) ceiling, created in the past for another reason, if it can cause a constitutional or financial crisis today? It is to force coordination between Congress, the Executive and the Federal Reserve (Fed), the central bank. It is the use of a legal mechanism so that the executive cannot make spending decisions unilaterally, also limiting the Fed’s actions on monetary policy. In Brazil, we already had the Central Bank validating the Executive’s public spending spree, either by keeping very low interest rates or indirectly printing money. The ceiling forces Congress and the Executive to reach an agreement on the Budget so that they can vote to increase the public debt.

Deep down, this was also the idea of ​​the spending ceiling in Brazil, which was lifted by the previous government. With clear rules, the allocation of public revenues would have to be negotiated. Increased spending on civil servants? You’ll have to get it from somewhere else. For military? Less appeal to another area. It’s this battle for the US Budget going on right now. Republicans want, in exchange for votes to raise the ceiling, cuts in parts of the Budget that they consider a “waste” of money, such as credits for renewable energy programs, in addition to such a discretionary spending cap.

In the case of the US, there is an additional issue. The 14th amendment states that the validity of the public debt of the United States, authorized by law, cannot be questioned. That is, a debt default is illegal.

For the first time, the American president can seek an alternative other than an agreement with the Legislature, using the idea of ​​the illegality of the default as a way to increase the debt ceiling in court. But that would make the American political system even more polarized. A democracy works best when Congress and the Executive sit down to negotiate for the good of the country. We know what happens to a president who ignores Congress: populism.

The process of Latin Americanization in the US continues at full speed. And that may not end well, either for them or for the rest of the world.

PRESENT LINK: Did you like this text? Subscriber can release five free hits of any link per day. Just click the blue F below.