Since 1960, Congress has raised the debt ceiling 78 times, according to Bloomberg. The process of increasing the debt limit has become so regular that markets barely worry about it. Furthermore, as the 2011 debt ceiling crisis showed, the impact on asset prices happened mostly in emerging economies. In 2011, Turkish and Indian debt were the most negatively impacted, while Treasuries rose.

Politicians believe that raising the debt ceiling is a social policy and that debt does not matter. Until it does. United States debt to GDP is now 123.4% and the risk of losing confidence on U.S. treasuries as the lowest risk asset is exceedingly high.

According to the University of Michigan, inflation expectations index for 5-30 years reached a 12-year high of 3.2 percent. At the same time, the consumer sentiment index declined to 63.5, compared to a pre-pandemic high of 300. The deterioration in the situation of consumers is evident.

The official narrative is that inflation is under control. However, many tend to forget that reducing inflation from 9 to 5 percent is relatively easy. The challenge is to bring it back to 2 percent.

Inflation is a hidden tax. Governments always try to hide the loss of purchasing power or blame anyone but the only reason that causes most prices to rise at once: printing money well above the actual demand for it.

Deposits at U.S. commercial banks have fallen to lowest figure in nearly two years, according to the Federal Reserve. This figure has fallen by $500 billion since the Silicon Valley Bank collapse. However, total banking credit has risen to a new record high of $17 trillion, according to the U.S. central bank. Fewer deposits, but more credit. What could go wrong?

The inevitable credit crunch is only postponed by a consensus view that the Fed will inject all the liquidity required and that rate cuts will come soon. It is an extremely dangerous bet. Bankers are deciding to take more risk expecting the Fed to return to a loose monetary policy soon and expecting higher net income margins due to rising rates despite the elevated risk of increasing non-performing loans.

The Federal Reserve’s balance sheet reached its all-time high in May 2022. Since then, it was supposed to drop at a steady pace and shed three trillion US dollars by 2024. The normalization of monetary policy was built on the idea of a soft landing for the economy. However, the Fed may be killing the private sector to save the government.

Curbing inflation requires a significant reduction in the money supply and aggregate demand. However, if government deficit spending is left untouched, the entire burden of normalizing monetary policy will fall on families and businesses.