“Who Killed the Deficit Hawks?”
Guns. Butter. Bread. Circuses.
These the American people were treated to in heaping doses yesterday…
The United States Senate voted 93-7 in favor of a generous $854 billion spending bill.
An “unprecedented government spending spree” is how one site styles it.
The war hawks get $606 billion for guns… the sob-mongers get $178 billion for bread and butter.
The spectacle itself is the circus, offered up in half a dozen rings.
In the absence of a deal, the government would have partially “shut down” Oct. 1.
Next week the bill — and “bill” is just the word for it — goes to the House for the rubber stamp.
From there it proceeds to the presidential desk, where it will acquire the looping signature of Donald John Trump.
“Who killed the deficit hawks?” wonders Nick Gillespie, editor of Reason.
We noted last week that federal spending has increased 7% this fiscal year… while tax revenues have increased only 1%.
The Congressional Budget Office (CBO) estimated earlier this year that the budget deficit would exceed $1 trillion in 2020.
But merely last week it announced the deficit would exceed $1 trillion next year — one year ahead of schedule.
Meantime, federal debt is rising perhaps three times the rate of revenue coming in.
U.S. public debt excels $21 trillion… and swells by the day.
Who killed the deficit hawks, indeed…
For the long-term consequences we turn to the Brookings Institute:
Sustained federal deficits and rising federal debt, used to finance consumption or transfer payments, will crowd out future investment; reduce prospects for economic growth; make it more difficult to conduct routine policy, address major new priorities or deal with the next recession or emergencies; and impose substantial burdens on future generations.
To simply maintain current debt levels, CBO estimates Congress would have to increase revenues 11% each year… while simultaneously hacking the budget 10%.
Will Congress spend 10% less each year?
The pig in his sty will first sprout wings… and take to the aerial ways.
We furthermore have reason to believe America’s fiscal descent will accelerate this November…
Online odds maker FiveThirtyEight currently allots the Democratic Party a 79.5% chance of seizing the House in the midterm elections.
Assume for the moment it does.
Perhaps you recall Trump’s campaign pledge to tackle America’s ancient infrastructure?
Former Trump economic adviser Gary Cohn predicts the president will join Congress to hatch a “massive debt-fueled infrastructure bill.”
Cohn, telling Reuters:
If the Democrats win the House I will be shocked if the first thing they don’t do is infrastructure. I think they’ll do a trillion dollars, trillion and a half dollars of infrastructure, and the president will sign it.
Why so willing to get down on all fours with the Democrats who are hot for his scalp?
The president looks at these economic decisions in a very simple lens: “I want to grow the U.S. economy, I want to create jobs, I want to create wage growth.” If the federal government can do something that helps [him] accomplish those three things, he will be 100% inclined to do it. I mean, that’s literally how he looks at it.
We look at it an stagger, dizzied by the prospects of another trillion dollars of debt.
“Another trillion in debt, here we come,” Cohn concludes.
Does America’s infrastructure require emergency surgery?
Then let it have it.
The bridge must not collapse… the pothole is a menace… the broken water main is a grand migraine.
But in a time of budgetary surplus these would be seen for what they are — necessary expenses.
It is only when we cannot afford them, when the national strong box is empty… that they masquerade as “investments.”
In the 1990s Japan undertook many similar “investments” to lift it from its economic wallows.
Infrastructure projects proliferated nationwide. One end to the next, the Japanese islands were blanketed with concrete.
A “lost decade” — lost decades, in candor.
The Japanese economy has scarcely improved an inch… and the Bank of Japan is still hard at the business of “stimulating” the economy.
Coming home, American GDP growth has averaged some 2.1% since 2010.
Meantime, CBO currently projects American economic growth to limp along at an average 1.9% per annum for the next decade.
In contrast, average annual growth of 3% or more was common before the great gale of 2008.
One percentage point may not appear dramatic — and one year to the next it is not.
But multiply it by five years, 10 years, 20 years… and you will acquire a grim lesson in the meaning of compounding interest — negative compounding interest.
If America doesn’t lick its debt… it is a lesson its current generation of youth may learn good and hard…
Managing editor, The Daily Reckoning