What happens to business cycles when fiscal policy’s constrained such that it can’t act as a countercyclical stabilizer?

That’s an important question at a time when America seems to have reached some manner of limit in terms of the market’s tolerance for congressional dereliction around deficits and debt.

To be clear, deficits don’t matter for the US in the normal course of business, and Treasurys are better conceived as interest-bearing dollars instead of “debt.” The problem currently is that acute political dysfunction inside the Beltway, alongside evidence of democratic backsliding and institutional decay, are calling into question the permanence of America as we’ve known it in the post-War period.

Arguably, we’re getting closer to a place where deficits do matter for America and where Treasurys become just another claim on a government, and are therefore only as money-good as the government itself at any given time. That, as opposed to Treasurys as a claim on an abiding entity called “America” which stands on its own, apart from and, at least at the foundational level, unaffected by, the vagaries of any one Congress or executive.

With that in mind, consider the chart below from Deutsche Bank which illustrates the lengthening of economic cycles in America as measured by the NBER.

Each of the last five cycles has exceeded the historical mean and median by a very wide margin.

Over the same period covered by those cycles, America’s public debt pile has ballooned four-fold as a share of GDP. It’s thus fair to suggest America’s so-called “golden credit card” is a factor in explaining longer cycles over the last four and a half decades.

If the US is in the process of squandering the exorbitant privilege, it’ll be harder for the government to step in when the economic going gets tough. Yes, Congress can authorize more spending and Treasury can sell debt to fund it, but suddenly, America would discover what it’s like to have to fund those expenditures at market-clearing prices predicated on price-sensitive investors’ assessments of the fiscal fundamentals.

“In hindsight, it’s no surprise to see longer business cycles when debt just keeps on going up and extending the cycle when problems hit,” Deutsche Bank’s Jim Reid remarked, editorializing around the chart. “Maybe we’ll go back to shorter cycles if and (more likely) when we hit the debt wall.”