‘Fools, Drunkards and the United States of America’

Mr. Barry Ritholz of the eponymous Ritholtz Wealth Management:

We were warned that deficit spending would crowd out private capital, choke off innovation and new company formation; it will send the costs of U.S. borrowing skyrocketing higher, making the debt impossible to manage; force the U.S. dollar to be radically devalued against all other currencies, thereby devastating the U.S. economy; cause rampant inflation, spiking prices to levels not seen before; last, act as a drag on the overall economy.

That none of these things occurred makes me wonder why we still pay attention to these deficit hawks.

The blind man leaps from a 100-story structure.

Ninety floors down he concludes he will plunge forever in safety.

‘Nothing’s happened yet so why should it happen now?’

Thus the United States government can continue to pile up deficits.

Yet what if the United States is 90 floors down?

So Far, So Good

We concede that there is a high degree of justice in Mr. Ritholz’s comments.

For decades deficit hawks, so-called, have yelled wolf.

The national debt has scaled $1 trillion, they shrieked.

The dollar is doomed, the world will heave it overboard, the United States economy is destined for the gutter.

They repeated the wails at $2 trillion… $5 trillion… $10 trillion… $20 trillion… $25 trillion… $30 trillion.

United States national debt presently totters at $35 trillion.

Total United States debt — both public and private — comes in at $101.5 trillion.

Yet the dollar remains king and the American economy has yet to gutter.

There have been shakes, there have been wobbles.

And it is entirely possible the United States economy has already wandered into recession.

Recent unemployment data indicates that it has.

Yet we do not believe the heavens will come falling down upon our hapless and helpless heads.

Not Weimar Germany

Meantime, despite Mr. Ritholz’s soothings, inflation has enjoyed itself quite an inning since 2022.

Yet it has not proved the inflationary hell of cataclysmic lore.

We believe moderate inflation will continue to cling to the American economy — but nothing nearing hyperinflation.

Is the United States the Germany of the Weimar Republic?

You can moan and sob about its present condition — and perhaps with justification.

Yet the United States is not the Germany of the Weimar Republic.

Nor, in our telling, will it be anytime soon.

It enjoys too many natural advantages.

As Germany’s iron chancellor Bismarck once noted, and as we are fond to repeat:

“God has a special providence for fools, drunkards and the United States of America.”

America’s Natural Advantages

As we have argued before: God filled two oceans — one Atlantic, one Pacific — to moat the United States off from marauders.

Against its land borders north and south He positioned two geopolitical bantamweights.

He blessed it with vast tracts of wealthy, fertile land… an extended capillary system of internal waterways… natural harbors from which to send items out… and to take items in.

What other nation has enjoyed such natural, God-granted riches?

We struggle in vain to conceive of one.

Has God given the United States a Baltimore… a Detroit… a Cleveland?

Has He populated its capital with an endless roster of rogues, rascals, cadges, chiselers, grifters and swindlers?

Well, friends, maybe He has. Yet even God Almighty must be granted space for error.

Perhaps it is not even error — but intention.

It appears He has a mischievous, even puckish sense of humor, this God.

We hazard He delights in pulling noses and yanking chains.

Yet the cardinal fact cannot be denied. He has showered America with immense natural extravagance.

As we have likewise argued before, only Americans themselves could make a botch of this God-spawned idyll.

Yet it appears they are determined to do precisely that.

Reality Will Soon Set In

We return to the above said Ritholz.

He puts his tongue out at the concept that deficit spending “will send the costs of U.S. borrowing skyrocketing higher, making the debt impossible to manage.”

Yet he might have another guess. Reports the Peterson Foundation:

The Congressional Budget Office (CBO) projects that interest payments will total $892 billion in fiscal year 2024 and rise rapidly throughout the next decade — climbing from $1 trillion in 2025 to $1.7 trillion in 2034. 

In total, net interest payments will total $12.9 trillion over the next decade. Relative to the size of the economy, interest will rise from 3.4% of gross domestic product (GDP) in fiscal year 2025 to 4.1% in 2034. The previous high for interest relative to GDP in the post-World War II era was 3.2% in 1991 — that ratio would now be exceeded in 2025.

Here you have it in graphic form:

More:

In fiscal year 2024, the federal government will spend more on interest than on defense as well as non-defense discretionary, which includes funding for transportation, veterans, education, health, international affairs, natural resources and environment, general science and technology, general government and more.

In fiscal years 2024–2027, interest payments will exceed the amount that the federal government spends on Medicare… According to its latest long-term projections, CBO projects that interest will become the largest category in the federal budget in 2051 — exceeding the amount spent on Social Security that year.

What then, Mr. Ritholz? Will deficits finally matter?

Debt Beyond Endurable Limits

Under present and anticipated conditions, we do not believe the United States economy can push along much.

Like a pack mule loaded beyond endurable limits… the United States economy is debt-loaded beyond endurable limits.

The legs are unequal to the burden upon the back.

Yet we do not believe the legs will buckle under — not fully.

We concede the possibility that the legs may buckle fully.

But we refer you once again to America’s vast advantages. They will likely keep the beast upright, though vastly hobbled.

We embrace instead the gradualist theory of decline, likely unfolding in grass-growing and paint-drying motion.

An Endless “Damp and Drizzly November”

In our estimation this economy presents a future not necessarily of collapse but of gray and twilight, of habitual malaise…

Of, in Herman Melville’s phrasing, a “damp and drizzly November”… month upon month… year upon year.

May artificial intelligence and other technological wizardries catapult us out from the languor — and into an infinitely productive and prosperous future?

It is possible. Yet is it likely?

We are far from convinced that it is.

Thus we are reduced to hope.

And as Herr Freddy Nietzsche observed:

“Hope… is the worst of all evils because it prolongs the torments of man.”