Late Wednesday, the House passed an agreement to raise the debt ceiling in exchange for a few micro changes in spending. But despite all the (wildly exaggerated) warnings about a default, complaints from both sides about the terms of the deal, and what no doubt will be celebrations in the White House for getting a deal done – this fight has always been a sideshow. It’s the debt itself that poses the real and immediate crisis. And this debt ceiling bill does absolutely nothing to address that.
In other words, it’s business as usual in Washington, and anyone celebrating this agreement should be run out of town on a rail.
Here’s what the country faces today.
Interest payments are exploding: Thanks to unprecedented spending during COVID, not only does the government owe interest on $3 trillion more debt than it did when Joe Biden took office, interest rates are going up thanks to the inflation that all that reckless spending sparked. The chart below shows the shocking trend. In just the past year, quarterly federal interest payments shot up 54%.
This year, net interest on the national debt will top $663 billion, according to the Congressional Budget Office. In five years, interest payments will top $1 trillion. In a decade, interest on the debt will exceed the projected Defense Department budget by 30%.
As a share of GDP, net interest payments are on track to nearly double the historic average in just a few years. Worse, given the massive annual deficits, all of these interest payments are – in effect – being paid for with borrowed money.
The debt is skyrocketing: Out-of-control spending combined with exploding interest payments, will, in turn, add to the already mountainous federal debt. By next year, the debt held by the public will equal the entire GDP, according to the CBO. The only time that happened before was during World War II.
But unlike then, the debt will keep piling up. In just the next six years, we are on track to add $10 trillion, and another $10 trillion just four years after that.
This assumes there’s no recession between now and then, even as recession storm clouds gather. And this doesn’t count the unfunded liabilities the government has been racking up through programs such as Social Security and Medicare. Today, this “intergovernmental debt” stands at nearly $7 trillion.
Social Security and Medicare deficits are ballooning: This year, Social Security will run a deficit of $119 billion. That’s the difference between what the program takes in through payroll taxes and pays out in benefits. To make up the difference, it draws from its so-called Trust Fund, which just means it cashes in bonds the government paid to itself. Either way, it’s adding to the federal deficit each year.
So, too, will Medicare starting in 2025. Combined, the two programs will soon be running annual deficits totaling half a trillion dollars.
At its best, the debt ceiling bill that House Republicans passed earlier this year barely addressed these calamities. It did nothing with entitlements, only slowed spending growth, and wouldn’t have produced a balanced budget anywhere down the road.
And that plan was always a bit of a pipe dream, given that Republicans held only a slim majority in the House, with Democrats controlling the Senate and the White House. But even Republicans are unwilling to talk about reforming entitlements. During his State of the Union speech, Biden essentially got Republicans on record as defending Social Security and Medicare. And Donald Trump is hammering away at Ron DeSantis for supposedly wanting to cut these programs.
So, we hope the Washington crowd enjoys its little celebration over the debt ceiling deal. Because while it might have plugged a leak in this little tub, the Hoover Dam is about to collapse behind it.
— Written by the I&I Editorial Board
Using these vague “policy violations,” Google is now threatening to demonetize us. It’s part of Big Tech’s effort to silence conservative voices.
According to congressmen at the GOP post-Memorial Day meeting, McCarthy said he folded the GOP’s strong hand (four aces) to Biden’s pair of deuces to prevent Biden from proposing higher taxes. In other words, McCarthy capitulated like a whimpering dog with its tail between its legs and ended the negotiations prematurely. Proving once again that I&I was right that the GOP are brain-dead and stupid, at least at the leadership level. Gaetz and those not trusting McCarthy turned out to be right. The fine print in the legislation gives Biden’s budget office the legal right to override any debt-limit aspirations. In other words, Biden was handed a blank check for two more years. Thus, Biden immensely boosted his reelection prospects, emerging as the big winner (even if you disagree with his nefarious goals). Top-Dog Biden even gets a new FBI building and enhanced funding for the FBI (Dem party enforcement wing) to carry out its domestic terrorism tyranny racket against GOP/MAGA political opponents. Expect a grateful FBI to continue its protection racket for the Biden family and Democrats. McCarthy got Zip and Pip for GOP.
Interest on the debt will exceed $1 trillion in 2024, if not sooner. Even 87,000 new armed IRS agents will not be able to raise enough money from a populace growing poorer by the day in terms of purchasing power. Massive money-printing is the only way to pay for the massive federal spending spree (a form of stimulus or QE). This means more price inflation. Hence, a vicious spiral. More federal spending leads to higher interest rates, which leads to more business failures (reduced tax base) and more price inflation as businesses pass on their higher interest costs in the form of higher prices. Biden’s inflation becomes McCarthy’s inflation. Dems win big (whole Biden agenda), GOP loses (gets Zero, zip, nada; not even one extra border patrol agent). Perhaps Biden and McCarthy consider it a political win-win, as they demoralize their common Trump/MAGA enemy. So what if the economy and country go to hell in a hand-basket with a massively devalued dollar and permanent “transitory inflation”.
Congress is killing America’s future. That’s the downside of having so many old people in congress. They know they’ll be gone when the dam breaks.
Any number of American families, and businesses go bankrupt each year in exactly this same way. Keep borrowing to maintain an unsustainable lifestyle. What signals the end of this for private entities is when just servicing the debt requires borrowing money.
Many decades ago I was in a similar position. Unsustainable borrowing had gotten a family business into the position of an unserviceable operating loan. The bank didn’t exactly cut off our funding, but wouldn’t approve our annual operating line of credit (i.e. refused to raise our debt ceiling). I ran the business on cash flow for nearly 8 months, sold off under-performing assets, reorganized a little bit, and Oui La! the operating line was now on a path to decline and a smaller bank would provide it.
I think most our elite class is on the back of the tiger, has no competence to actually ride such a beast (there isn’t enough money in the universe to satisfy the Democrats spending needs) and lacks courage to just get off — to explain to the average voter that there are trade-offs that must be made.
So much noise, fancy financial formulas, grand speeches and yet not much wisdom around the subjects of cuts and ceilings.
Recall that Steve Forbes recommended a flat tax for most filers and filing our taxes on one piece of paper. That could save, pick a number, 75% of the IRS budget? Billions and billions saved and not taxed to make life better for all of us. Several Federal Departments ought to be closed for a better, more rational life in the US. Billions more saved and not taxed. Hate to point the finger at our brave and essential military but everything ever written about procurement and bidding for military contracts talks of billions wasted here and billions squandered there, in exceedingly bad and often absurdly political bid management. Anyone want to take a stab at Army Corps, too, for squandering billions and billions in the same way the military does. Or nonsensical EPA regs and on and on. Billions and billions given to unproven pie in the sky energy schemes reminding us all of Obama’s infamous Solyndra debacle.Take any Fed department or agency and a wise administrator could cut, pick another number, 25%? from its budget for the good of the USA and for the better management of that department.
All in all, it seems no one in Congress is wise, intelligent or at all serious about any cuts or the ceiling. Lot of posturing and preening and very few wise people in DC.
“Government spending” gives it too much credit. The political classes are just looting the treasury at this point, stealing everything that isn’t nailed down.
Ladies and Gentlemen,
It’s always been too damned obvious.
Debt should be used as a government fiscal strategy under two circumstances:
(1) as a societal capital investment in generalized infrastructure development beyond its (i.e. ‘our’) current fiscal means – but that is reasonably expected to generate societal wealth beyond the debt’s capital and interest costs, and
(2) unanticipated costs of unanticipated existential warfare for national preservation.
Other budgetary deficits are simply thefts by the ‘present’ from the future: you do not borrow money to cover known ‘operating expenses’ that lie beyond your means; you do what is needful to control your operating expenses.
I have railed on this simple understanding from my youth (+/-60 years ago) to the present day.
Hence my present depressive state of mind.
aka Hammersdad