The End Is Nigh (Not Really)
No major wars, the economy is humming along, record numbers of Americans are earning paychecks from which taxes are withheld —- and yet another damn year of trillion-dollar deficits.
Bloomberg quotes Cantor Fitzgerald’s chief of interest-rates trading, Brian Edmonds, warning, “We’ve seen deficits continue to blow out. We are going to see more and more supply [of Treasuries].” The same story warns that a “darkening a fiscal outlook already made worrisome by rising entitlement-program expenses and higher costs to service America’s nearly $16 trillion in debt. The Federal Reserve’s balance-sheet runoff is also adding to supply, forcing Treasury Secretary Steven Mnuchin to tap the public for more funding.”
Where there’s a supply of debt, there’s a demand for it, too — providing interest rates are high enough to entice. And so rates are probably going up again. So it will be more expensive for Washington to borrow for this year’s deficits, and also more expensive to refinance the existing 14-digit debt which rolls over every few years.
There’s no sense trying to pin the blame on tax cuts, as our Progressive friends are wont to do. Federal revenues are expected to hit yet another record this year. And anyway, with Washington already claiming an 18% cut of our work every year — and state spending another 20% on top of that — where is the extra revenue going to come from? A tax on thingy?
ASIDE: If the reports about Millennials have any truth to them, taxing sex wouldn’t generate enough revenue to finance an elementary school picnic, anyway.
Just paying the interest on the debt this year is expected to be $363 billion. That’s a three and a six and a three followed by no fewer than nine zeros. In other words, financing the debt we’ve already accumulated accounts for more than a third of the money we’re going to have to borrow this year. And financing the debt is Washinton’s fastest-rising expenditure, expected by mid-decade or so to be an even bigger spending item than all of Defense.
To put it yet another way: Our total debt is going to grow about twice as fast as the economy does this year.
As anyone who has ever had to pay the minimum on the Visa using the wiggle room on the MasterCard can tell you, at some point something’s gotta give.
With interest rates slowly rising and no appetite in Washington for even so much as a spending freeze, we’re maybe a decade way from each year’s interest payments being the size of this year’s deficit. Sooner, if we experience another economic shock anything like 2007-08.
Japan has been getting away with an even worse addiction to debt for nearly three decades, but they get away with it because the Japanese save a huge fraction of their incomes, and use those savings to finance Tokyo’s spending habit. A country can spend in one place (government) where it saves in another (private citizens).
Americans... do not do those things. Consumers borrow, corporations borrow, and most of all Washington borrows — bigly. Since Americans don’t save and Washington won’t spend responsibly, instead we depend a lot on other countries — China, to a large extent — to finance our spendthrift ways. That arrangement strikes me as maybe not the smartest thing ever. As British historian Niall Ferguson put it a while back in his clever (if perhaps a bit precious) “Chimerica” formulation, our two countries are like a marriage where one spouse does all the spending and the other does all the saving. Over the long haul that’s not usually a happy — or tenable — relationship. On the other hand, Ferguson has been beating that particular drum for a while now, and so far not much has come from it.
Former Speaker Paul Ryan — who made his pre-Speaker career out of warnings just like this one — had the last two years to do something, but didn’t raise so much as a whisper of a peep. With Nancy Pelosi and the most far-left Democratic Congress perhaps ever back in charge, it’s a safe bet we’ll do even worse than we did under Ryan.
Yet this is absolutely a problem we can grow our way out of. If Congress could reduce annual spending increases to just one or two percent annually — hardly a hardship — the benefits would be immediate and plentiful. Perhaps the best and most immediate result of smaller deficits would be more lending money available to the private sector. That’s more money for the investments and productivity improvements necessary for the 4-5% economic growth which President Trump wants us to achieve — and which we can achieve. Also, our lenders would require less incentive — i.e., would tolerate lower interest rates — if they saw Washington was getting serious about curbing its appetite for new debt. We do face a crisis, but it is an evitable one.
We aren’t yet past the point of no return, but the sooner Congress acts the less pain there will be. But maybe the old jab — perhaps wrongly attibutated to Churchill — is correct, and we Americans will always do the right thing... after we’ve exhausted all the alternatives.