by Blaine Dickason
Senior Vice President
Portfolio Management and Trading
“It’s like déjà vu all over again.” - Yogi Berra
Yogi Berra might have been one of the most accomplished baseball players in history, but his greatest legacy may have been his contribution to classic sayings, otherwise known as “Yogi-isms.” His famous quote about déjà vu was supposedly uttered after watching Mickey Mantle and Roger Maris hit back-to-back home runs in 1961. However, one could easily hear it being uttered today when observing the politicians in Washington, D.C. grapple with the federal debt ceiling that is due to be lifted or suspended again this year.
The debt ceiling, otherwise known as the debt limit, was first imposed by Congress during World War I to allow the Treasury Department to sell bonds as needed up to an established limit to fund the war effort, streamlining the appropriations process for both. It is important to note that the debt limit does not authorize new spending; it only sets the allowable total debt outstanding for the U.S. government. Given our pattern of deficit spending, or annual federal spending exceeding annual federal revenue, the debt limit may be reached many years after the spending bills responsible were approved by Congress. According to the Treasury Department, the debt limit has been amended at least 78 times since 1960 by both Democratic and Republican administrations to allow for increases to our national debt. As you can see below, it would be hard to argue that the debt limit has altered the pace of new debt issuance.
Sources: U.S. Treasury Department, Bloomberg
In January, our federal government once again reached its debt limit, currently set at $36 trillion, and as a result, has already begun taking ‘extraordinary measures’ to fund the various government arms without issuing any net new debt. Tax revenue from the upcoming April 15 filing deadline will create an additional spending buffer. Still, it will likely only push the so-called ‘X-date’ when government funding runs out sometime in August.
Almost two years ago, I used this blog post to address the 2023 round of debt ceiling negotiations, and it wasn’t pretty. This year’s debt ceiling discussions may not be as contentious with single-party control in both the White House and Congress, although, with a possible extension of the Tax Cuts and Jobs Act of 2017 hanging in the balance, the stakes will be just as high. The chart below shows federal revenue has been remarkably constant at around 17 to 18% of our country’s GDP over the last 50 years despite several substantial changes to our tax code. What has changed since the Great Financial Crisis of the late 2000s is the much higher level of federal spending as a percentage of GDP. As a result, our total national debt has more than doubled since then ($17.4 trillion in 2009) and is already nearly 15% higher than the last time the debt limit was amended just two years ago when it was set at $31.4 trillion.
Sources: Congressional Budget Office, Bloomberg
Whether viewed in outright dollars or as a percent of our national output, the nearly $2 trillion of annual federal deficits representing over 6% of GDP from recent years are historic levels of spending for the United States amid a strong economy and full employment. As Congress refines its spending bills over the coming months, plenty of challenges will be addressed to return our federal budget to a sustainable path. As Yogi Berra once said when faced with a choice, "When you come to a fork in the road, take it." Perhaps Congress can take heed.
Takeaways for the Week
Today, the Federal Reserve’s preferred measure of inflation, the January Core Personal Consumption Expenditure Index, was reported as +2.6% from the prior year, down from +2.8% year-over-year in December 2024. The Federal Reserve’s long-term inflation target remains at +2.0%
Initial jobless claims inched up to 242,000 this week, up from 221,000 the prior week. This frequent indicator for the labor market has averaged 224,000 per week over the prior year