It's time to address another one of those topics that requires us all to be
adults. It concerns the US debt.
The US Federal debt has crossed the $27 trillion dollar mark. On
May 12, just five months ago, the debt had just crossed $25.1 trillion. That was
right after the $3 trillion "stimulus and rescue" package in response to the
Covid-19 lock downs was passed, so in April of this year, that was $22
trillion.
I don't need to point out that we're a matter of weeks before the
election. We've seen some of the expenses that
Biden/Harris/Hillary/whoever will put forward. While the
Biden/Harris team is drastically different from the Trump/Pence team, and it
seems support for Trump/Pence is essential for a variety of reasons, perhaps even critical, I've been saying since '17 that deficit spending is
Trump's weakest area. The nonpartisan Committee for a Responsible Federal Budget
(CRFB) released a study earlier this week, called “The Cost of the Trump and Biden Campaign Plans.” Yes, Biden's plan is worse, but the differences aren't that
great - on the order of 10 to 20%. CRFB analyzed three different approaches for each candidate based
on things the campaigns published, breaking them into three cost
brackets.
Note that the capture of the US Debt Clock says we are currently at debt of nearly 138% of GDP, nearly $217,000 per taxpayer, and things will get worse from here.
The report included this summary:
Under current law, trillion-dollar annual budget deficits will become the new normal, even after the current public health emergency subsides. Meanwhile, the national debt is projected to exceed the post-World War II record high over the next four-year term and reach twice the size of the economy within 30 years. Four major trust funds are also headed for insolvency, including the Highway and Medicare Hospital Insurance trust funds, within the next presidential term.A debt to GDP ratio of over 200% is an exotic territory, and very few countries have survived long enough to get there; notably Japan. They predict we'll be there by 2050. Typically, countries economically collapse before they get that far in debt. Like before they get to 150%.
As the report points out,
The national debt was growing rapidly before the necessary borrowing to combat the COVID-19 crisis, and this trajectory will continue after the crisis ends. Fiscal irresponsibility prior to the pandemic worsened structural deficits that were already growing due to rising health and retirement costs and insufficient revenue.As someone who gravitates to the Information Theory of Money, I prefer a limited, commodity-based money that can't be created in infinite supply. Nevertheless, I have to say that even John Maynard Keynes himself didn't say to deficit spend all the time. He thought printing money was for bad times when relief was needed, and in good times nations would pay the deficits down.
As always, the election is a choice of the less bad candidate. Either way we're facing long term debt problems that get worse. Fed Chairman Powell this week said something to the effect that yes, we have long term debt problems, but this is not the time to attack them. He's arguing essentially Keynes' point that he'll do more damage to more people by not trying to stimulate the economy than by trying to address the debt. What he doesn't talk about is that the long term debt problem limits what he can do, because of the marginal utility of the dollar. After dumping trillions of created dollars into the economy, how can doing less matter?
A year ago, the economy was strong; that would have been a time to start addressing deficits and trying to reduce the deficit's growth. Today we have the economy in shambles, cities in flames, and crisis after crisis. As a coach of mine once said, "you can only play the hand you've been dealt." No matter what we do, the debt is going up along with the dangers that come with that; inflation is here, hyperinflation and collapse are possible. Despite the CRFB report, the choice between the two teams isn't that close.
I'm really not being partisan here, but the "Harris-Biden Plan" is just a sop to the more moderate Democrats. Their spending plans are AMBITIOUS.
ReplyDeleteThere aren't enough conservatives in America to elect a president. President Trump is a populist and he hopes (from what I gather) that a super strong economy will grow us out of the debt. If Congress could be curtailed, maybe, but they won't be because the population (most of the population) demands bread and circus.
There's a big demand for free cheese.
As someone who gravitates to the Information Theory of Money, I prefer a limited, commodity-based money that can't be created in infinite supply. Nevertheless, I have to say that even John Maynard Keynes himself didn't say [no] to deficit spend[ing] all the time. He thought printing money was for bad times when relief was needed, and in good times nations would pay the deficits down.
ReplyDeleteDo you mean you sometimes favor the country borrowing money by issuing bonds, and paying off those debts with future taxes? This brings new capital into the country, which can be given to some people for relief. Or do you mean you sometimes favor printing currency, which taxes middle class savers, and brings no new capital into the country? It's just pure communist redistribution.
You can't pay currency inflation (not deficits) down, because there's no inverse of the "push" operation of printing currency. There is no "pull" operation which brings the correct pieces of currency back to the mint to be destroyed (un-printed).
This is surprisingly difficult to answer in something pithy.
DeleteLet me start here: I can think of no economic problem we have in the US that is not caused by the Fed and fiat currency. Everything people complain about, from inflation to "income inequality" is because of their machinations.
Further, I think we're way past any real difference between your two choices (borrowing money by issuing bonds, and paying off those debts with future taxes vs printing currency). We're "borrowing" over $4 trillion. That's more than the total GDP of all but Japan and China, and nobody can buy our bonds with their entire GDP. So who can loan us $4 trillion? The fed has been buying almost all of our bonds for most of the 20-teens.
There is a pull operation in which the made up currency can be cancelled - since it's all done on computers and there's no actual collection and burning of money. As I understand it, that's typically done in the "overnight loans" the Fed does with the big banks. There was a little of that a couple of years ago, but that was quickly reversed.
This posting is more of a warning than anything else. I see bad things coming and I don't see a way out regardless of who we vote for. As LL points out, I think the democrats real spending plans are far in excess of what has been pointed out. Besides, they're far less likely to restore anything like the constitutional order we want.
Understand that a lifetime in design makes me a pragmatic realist. In engineering, we're always given a detailed description of the environment we have to design for. I can't say, "I don't like the speed of light" and define my own world. Likewise, I can stand on a soapbox and complain about the Fed as much as I want (and have for the last 10 years) but I can't remake the world to my own desires. I can't change Biden or Trump, all I can do is try to push back.
There is a pull operation in which the made up currency can be cancelled - since it's all done on computers and there's no actual collection and burning of money. As I understand it, that's typically done in the "overnight loans" the Fed does with the big banks. There was a little of that a couple of years ago, but that was quickly reversed.
DeleteIf the currency in the overnight loan just oscillates back and forth, then aside from transactional costs, over time it nets to zero and I should filter it out of the analysis.
The recent deficit/printed covid relief payments were given to individuals as a check. Some dollars of that relief were spent at a grocery store. While there is some recordkeeping of those dollars as component of a total sum, because mostly the dollars go through the banking system each time an individual is paid it or spends it, the individual dollars' serial numbers are not tracked (that I know of). It's mixed up and no data is recorded sufficient to unmix it and undo the effects of the official counterfeiting currency printing.
Speaking of physics models, the fed is an oscillator which produces the business cycle, not a regulator which damps it. Proof is that Queen Victoria was on a gold standard, and there was business cycle before and after her reign but not during.
In many ways but especially when it comes the National Debt the difference between the GOP and the Demonrats is akin to the 'bus analogy'. When the GOP is in charge the 'bus' that is America is heading for a cliff.....but it's idling along. When the Demonrats are in charge they stomp on the accelerator. The only meaningful difference is the time that will pass until the inevitable. The ONLY saving grace for America is we are still the Benchmark Currency. If that changes the collapse will be swift and ugly. But since no other major nation has an economy that is any better off than ours the status quo is likely to continue.
ReplyDeleteI propose that after the crash, the currency be replaced by the Quatloo. The value shall be defined as 10 Quatloos for one dozen size large eggs, to the farmer. The coins could have egg shaped holes in them.
ReplyDeleteA somewhat more serious proposal is to forbid anyone involved in banking and finance to be involved in those industries ever again, including the role of janitor or landlord. We also need to completely ban banks (on pain of death) from creating money out of nothing. Only the US Mint is allowed to coin money.
At this point, what would paying off the national debt even look like? It'd take crushing taxation over centuries to make a dent in that ludicrous imaginary number. It would be *unjust* to levy that sort of taxation against people who, despite our 1 bit of say every four years, never signed their name to our political overclass's malfeasance. And it would make the productive the slaves of the very people who ran up the debt.
ReplyDeleteRepudiation of some sort is inevitable at this point, either through hyperinflation or directly (which would set off inflation). All we can do is try to pry control of money in the future away from our parasitic governments.
MadRocketSci
The national debt is a shell game IMO: Eve spends the money, and Alice, Bob, Charlie, and Dave are on the hook for the balance, because Eve supposedly did it "in their name". Yeah, no. If you "loaned money" (often itself a fiction) to our government, you're an idiot, and we're not morally obligated to back their fraud.
ReplyDeleteMadRocketSci
What I found hilarious is DJT couldn't find $21 Billion to "fund the wall" without shuffling funds from all over, but he can come up with $0.5 Trillion for black business start-up loans in underserved markets on a whim a little over a month before the election.
ReplyDeleteThis is not a serious timeline we are living in, and should be treated as such.
Honk-honk.