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America Faces a Doom Cycle but Nobody Seems to Care
America’s political class can no longer put off the inevitable. They soon will have to pay for their insanely reckless fiscal practices.
It’s not going to be pretty. America’s debt has reached an appalling $31 trillion. Annual interest payments will exceed $1 trillion this year. Debt service is well on its way to crowding out other priorities, a trend that will only accelerate.
Unfortunately, a steep rise in interest rates occurred near the end of the biggest spending binge ever. Economists are warning we are nearing the dreaded “doom loop” in which interest costs can be covered only by more borrowing, which further drives up interest expense, creating a vicious cycle.
There is a weird, almost preternatural calm about our dire fiscal future during this campaign season. There is much consternation about inflation, public safety, the border, and other critical issues. Yet politicians and the media hardly mention the debt crisis, so the public seems to assume everything is under control.
It isn’t, not by a long shot. Uncle Sam issued $7 trillion in new debt to finance the recovery from the Covid pandemic and our panicked overreaction to the disease. It’s too bad we can’t take back that $7 trillion.
Much of it was stolen by fraud and bureaucratic bumbling. Funds went to school districts that haven’t spent them so far, to finance the indolence of those who preferred not to work and to Democrat pet projects like “climate change.” Millions of voters in no distress whatsoever got checks, as did some illegal immigrants.
Many economists predicted that injecting that much cash into the economy would cause inflation, especially since supply was limited by weakness in the labor market, fuel shortages, and supply chain problems. They were mostly ignored but turned out to be absolutely correct. After decades of relative price stability, we are now experiencing 8% inflation, with no end in sight.
Millions of non-economists are experiencing what that does to your standard of living. Suddenly, food, fuel, and shelter have become existential concerns to millions of Americans; the economic future looks dim.
Inflation also increases government spending. Social Security benefits are inflation-adjusted, resulting in an 8%, $100 billion increase. Total government healthcare costs will grow from $710 billion last year to $915 billion.
Financial markets cannot ignore the cloud of government debt hanging over our economy. A serious recession will almost certainly soon be upon us. Already, declining stock and bond values over the past nine months assure a steep decline in capital gains tax revenue, another contributing factor to the deficit.
The Federal Reserve Board is doing the only thing it can to address inflation, which is to raise core interest rates. That also directly adds to the national deficit, increasing the interest cost and driving up the balance, since no other source of funds is available.
So, to summarize, unnecessary Covid-related spending of $7 trillion has combined with chronic overspending. which caused inflation, which increased borrowing costs, which drove up the deficit, thus precipitating a recession that will deprive the government of revenues to pay down the surging debt load. Way to go, guys.
The principal response of the Biden administration has been denial. Our president claims the economy is thriving. A monthly 0.1% drop in the inflation rate was the pretext for claiming inflation was in decline. The national debt is never mentioned, nor are the untold trillions in future promises we have made to senior citizens and others.
Instead, Biden issued a probably unconstitutional executive order “canceling” unpaid college loans – i.e., transferring the liability to taxpayers. It was terrible public policy, penalizing those who had behaved responsibly and incentivizing student indebtedness in the future. It spent yet more money in a desperate attempt to bribe some votes for the midterm elections.
Yet there seems to be little taxpayer resentment. Why should they care? Their taxes aren’t going to increase. The obligation will be added to the great river of debt passed on to future generations-you know, those little people who don’t vote yet.
They will inherit an America feeble and impoverished, that will have forfeited its greatness because of our greed and selfishness. Stop the spending!
Published in Economics
Hard Times Produce Strong Leaders
Strong Leaders Produce Easy Times
Easy Times Produce Weak Leaders
Weak Leaders Produce Hard Times <— We are here
oil > money printing
https://www.zerohedge.com/energy/tverberg-why-financial-approaches-wont-fix-worlds-economic-problems-time
Good post
Needs to be repeated over and over till it sinks in to millions.
We are in a very fine mess, Ollie.
This to me is still the biggest issue no one in congress from either party wants to address
You can’t control spending under a discretionary central bank regime. It happens every single time. Inflationism is unworkable.
How do you expect conservatism and libertarianism to work or sell in this situation?
Although Covid has put spending into overdrive, we have had unsustainable levels of deficit spending for the entirety of this century. Other than Rand Paul, can you name any other politicians who have been harping on this?
There is an old saying that people get the governments they deserve. And when you have an American populace that largely says, “Give me free stuff and make someone else pay for it” this is the predictable result.
The second the Soviet union fell, they should have wiped out Fed discretion and basically run with deflation. The opening up of globalized trade and computers is deflationary. Then you can’t overspend. Furthermore, inflation is definitionally misallocated capital which comes back to bite you in the long run.
What we have is the PhD standard and we are too dumb and corrupt to do it.
http://financialrepressionauthority.com/2017/07/26/the-roundtable-insight-george-bragues-on-how-the-financial-markets-are-influenced-by-politics/
https://mises.org/wire/were-living-age-capital-consumption
This is my view.
Randy: Although Covid has put spending into overdrive, we have had unsustainable levels of deficit spending for the entirety of this century.
Rufus: Why is nobody talking about this?
A confluence of bad forces have changed people’s perceptions radically only the last six months and particularly only in the last few weeks since the Brit Bond Collapse, so many people are just now wrapping their heads around the incredibly vulnerable position the FED and the Biden Adminstration have put the American economy in. Where before we had very low interest rates, some growth and much lower Debt Financing costs so we could money print for a while, we now have:
• Lasting inflation from the consequences of the Ukraine War which have driven up energy and food costs in a huge way worldwide, which have also driven the FED to raise rates faster than anytime on record. The FED funds rate hit 4.44 % last thursday, the highest level since 2007 when our National Federal Debt was only 29% of what it is now.
• A huge inflation hangover from the outrageous $6 Trillion deficit spending and money print binge of 2020 and 2021.
• The combination of much higher debt financing costs ( soon to be over a $Trillion) due to much higher rates, decreased Federal Revenue due to the recession and a reversal of the huge Capital Gains windfall this year and greatly increased Welfare State spending due to coming recession will all push the Federal Deficit into huge money printing territory ( likely now over $3 Trillion) again which will create a huge amount of money supply driven inflation putting the FED between a rock and a hard place where only some very serious and drastic fiscal reform can save us.
Don’t central plan anything unless there is utterly no other option.
— Rufus R. Jones
To me, the author of this post has nailed the worst problem in America. Yet as an issue it has completely fallen from the radar – even for most conservatives. The dearth of comments and likes of this post shows the apathy right there. I’ve been dreading the eventual collapse of our economy for a couple of decades now. Few others seem to be concerned.
Republican politicians seem to care about government spending when Democrats have the majority. But when Republicans have the majority, most of them seem to forget about fiscal responsibility.
By and large, the voters don’t really care. When you look at how many millions of middle-age Americans have saved nothing for retirement, how many still haven’t paid for their college education even though they graduated over 20 years ago, how many people lease cars that they cannot afford to buy, it’s not a surprise that the electorate doesn’t greatly object to reckless levels of government debt. Maybe current conditions will finally wake up a few million people and we can start getting some candidates who actually are serious budget cutters. But I’m not betting on it.
It’s impossible to control spending under a discretionary central bank regime. Inflationism is patently stupid. It’s a constant misallocation of capital. It forces the debt to GDP level up without any net benefit. Then people need socialism.
For the next 15 years, to hold society together they are going to run with inflation. All they will care about is nominal GDP with a chunk of it that is actually decent level GDP. So something like, 6% nominal GDP comprised of 2% inflation and 4% GP forced by government spending. Old people have been stealing from young people, but in this scenario it will be reversed.
This guy is smart as hell. He was a deflationist right up to two years ago. Now look at it.
https://themarket.ch/interview/russell-napier-the-world-will-experience-a-capex-boom-ld.7606