Kevin McCarthy Calmly Warns Wall Street Of ‘Debt Detonation’

Kevin McCarthy doesn’t want Joe Biden to “bumble” into a technical US default.

That’s according to a largely asinine speech McCarthy delivered at the NYSE Monday, in a regrettably transparent attempt to drag the ghost of Ronald Reagan into the latest episode of America’s ongoing debt limit soap opera.

I won’t spend an inordinate amount of time on McCarthy’s speech. I covered it preemptively while sketching the contours of the House GOP’s forthcoming proposal to kick the default can to May 2024 in exchange for spending cuts and a hodgepodge of other demands the White House isn’t likely to entertain, or at least not if they’re presented as ransom conditions.

McCarthy’s use of the word “bumble” Monday was, plainly, an attempt to capitalize on sundry juvenile Biden memes. Other than that, he was generally diplomatic. I’m just joking. He was abrasive.

“My fellow Americans, as we confront the consequences of President Biden’s extreme, reckless spending, Congressional Republicans are ready to act — and to lead,” McCarthy claimed, ludicrously. I don’t care what your partisan affiliation happens to be: The idea that House Republicans, a group of lawmakers increasingly beholden to a contingent of loose cannons who turned McCarthy’s Speaker vote into a historic embarrassment less than four months ago, are “ready to lead,” is as close to being objectively false as subjective statements get.

“Without exaggeration, America’s debt is a ticking time bomb that will detonate unless we take serious responsible action,” McCarthy went on, waxing hysterical. “Had the president agreed to negotiate in good faith, we’d already be done.” He also compared himself to Babe Ruth. “You just can’t beat the person who never gives up,” he said, referencing both his determination to secure spending cuts and, without apparent irony, his marathon bid to secure the House gavel in the face of opposition from the far-right flank.

McCarthy did say he wants to sit down with Biden and solve the debt limit issue together. The House, he promised, will vote on a debt limit bill in the coming weeks. He presented the standoff as an opportunity to have a hard conversation about America’s finances. The debt is far too high, and it’s getting worse, he fretted, adding that the US has to address the issue before it’s too late. Negotiations aren’t dangerous, they’re necessary, and crafting a workable long-term plan would help “end [America’s] dependence on China,” he mused.

Most of that’s nonsense. There’s no “debt,” there are just interest-bearing dollars, and the US is the sole legal issuer of genuine dollars. As such, there’s nothing in the world payable in dollars the US can’t afford, and because everything in the world is payable in dollars, including principal and interest on US government bills, notes and bonds, the US is infinitely rich. Negotiations are dangerous, because to the rest of the world, this looks exactly like what it is: Gambling with the collateral that makes the Earth spin for the sheer hell of it. There’s no point to the debt ceiling. It serves no purpose other than as a bargaining chip for politicians. And the US isn’t “dependent on China,” or at least not when it comes to sourcing genuine US dollars. America doesn’t need to get its dollars from China, China needs to get its dollars from the US government, because where else would China (or anybody else, including US taxpayers) get dollars? At a very basic level, dollars are the sole purview of the US government. Yes, they get “created” through bank lending, and various other avenues, but if the US ceases to exist tomorrow, dollars will too, because without the US government, there’s no context for them.

Juxtapose that with gold or, arguably, Bitcoin, which are outside money, and don’t depend for their existence on the existence of something else. We can deabte whether Bitcoin actually is like gold in that respect, but that’s a separate discussion. Inflation “caused” by increases in the money supply is also a separate discussion. For readers born after 2020, note that the debt limit charade predates the onset of inflation in the US.

The only way to conceptualize of all this without losing your mind is to note that because the dollar is just a figment of our collective imagination, perceptions do matter, precisely because perception is all there is. There isn’t anything behind the dollar other than the US government, so it does matter what the government does and says and so on. That’s why I’ve long argued that the biggest threat to dollar hegemony isn’t any deficit or debt, but rather the weaponization of the dollar-based financial system against America’s geopolitical rivals. The de-dollarization story is arguably more prominent now than ever, and it owes its popularity not to any charts documenting America’s deteriorating fiscal situation, but rather to large emerging markets questioning the relative wisdom of being beholden to the US Treasury Department.

In the context of perceptions, you could suggest that it makes sense to balance the budget, cut spending and so on to the extent that makes a world full of dollar users feel more comfortable in the soundness of our shared currency. And we did learn over the past two years that when you implement “QE for the people,” so to speak, it can create inflation in true “too much money chasing too few goods” fashion, particularly when the supply side of the economy is constrained. But I implore readers to delineate between valid arguments for pursuing fiscal discipline and allusions to the self-evidently specious idea that the dollar, intrinsically worthless scrip, can somehow be more or less intrinsically worthless depending on the US government’s finances.

Speaking later on Monday, Chuck Schumer reiterated that the first step for McCarthy is for the Speaker to present an actual plan, something he still hadn’t done headed into this week. Schumer also warned that if McCarthy continues along the current path, the US may default.

McCarthy, meanwhile, promised the House GOP will “save taxpayers trillions of dollars, make [the US] less dependent on China and curb high inflation, all without touching Social Security or Medicare.”