If McCarthy’s Concessions Enable the Next Debt Crisis—Bring It On!
Yes, 15 votes and the slings and arrows of MSM opprobrium were well worth it. That’s because the GOP’s anti-McCarthy insurrection obtained concessions which just might slow America’s headlong rush to fiscal armageddon. And just in the nick of time!
We are referring, of course, to the Speaker elect’s promise that there will be no more debt ceiling increases without off-setting spending cuts; and that in the event of a double-cross a single Member of the House may table a motion to vacate the Speaker’s chair.
Talk about a sword-of-Damocles!
Never has one been hung over a more deserving target with such meritorious exactitude.
Indeed, the proof that Congress has finally done something meaningful about the nation’s appalling fiscal process was tipped by the New York Times, which headlined the matter on Sunday as “McCarthy’s Deal For Gavel Raises Fears on Debt Limit”:
Economists, Wall Street and political observers are warning that the concessions he made to fiscal conservatives could make it very difficult for Mr. McCarthy to muster the votes to raise the debt limit.….That could prevent Congress for doing the basic tasks of keeping the government open, paying the country’s bills and avoiding default on trillions of dollars of debt.
Oh, for Pete’s sake!
As we amplify below, there is zero risk of a default in the absence of a debt ceiling increase, and, more importantly, Congress has NOT been doing the basic tasks of fiscal governance for decades.
It never passes a budget; it runs the government on CR’s and Omnibus Appropriations Abominations; and has put upwards of 90% of the budget on automatic pilot via entitlements, mandatory spending measures, the rapidly growing public debt service payments and the herd of sacred cows which feast in the green pastures on the Pentagon side of the Potomac.
The bottom line, therefore, has been evident for decades to anyone paying attention: Namely, that the Federal budget has become a doomsday machine that cranks forward on its own momentum with virtually no confirming action by the public’s elected Representatives and Senators—save for occasional pro forma passage of an 11th hour 4,400 page Omnibus appropriations bill that no one has read.
For want of doubt, here’s the long-term growth of government transfer payment entitlements benefits since 1954. These are self-evidently the heart of the nation’s fiscal doomsday machine.
Dollar outlays (yellow line) have grown by a staggering 290 times—from $16 billion in 1954 to $4.64 trillion in 2021.
And even when you make allowance for inflation and economic growth, the story is no less relentless. Back in the heyday of postwar prosperity (1954), America was booming and middle class living standards were rising rapidly. Yet these transfer payment entitlements cost just 4.0% of GDP (purple line).
Needless to say, that’s a tiny fraction of today’s entitlement spending at 20.0% of GDP. And this staggering fiscal burden sits atop a national economy that is barely creeping forward on a trend basis–even as virtually every single dime of these expenditures have been authorized in perpetuity.
Government Transfer Payments—Level and % Of GDP, 1954-2021
Likewise, the national defense budget has doubled in inflation-adjusted terms since 1960, when President Eisenhower presciently warned about the undue power of the nascent military-industrial complex.
Since then, the mighty Soviet Union has slithered off the pages of history. So too, the Red Ponzi of China would last 12 months at most if it were to lose its $3.0 trillion per year of exports to the U.S. and Europe as a result of foolishly starting a war against the hand that feeds its debt and speculation entombed economy.
That is to say, the true threats to America’s national security today are a mere fraction of those posed by the nuclear-armed Soviet Union at the peak of the Cold War. That the current defense budget is nevertheless nearly two times larger in real terms is due to the fact that the constitutional processes for managing the nation’s fiscal affairs have essentially become vestigial.
What we have instead is history’s greatest log-rolling machine. This year, for example, the domestic spenders gave the military hawks in both parties the obscene sum of $858 billion for national defense in return for $773 billion of domestic pork. The combination amounted to $101 billion more than last year’s already capacious budgets.
Real Defense Spending Index, 1961 to 2021
Now, on top of the Welfare State and Warfare State, comes the explosion of mandatory interest payments. Like so much else, the Fed’s previous money printing madness resulted in rampant borrowing by Congress, even as artificially low interest rates drastically suppressed the annual interest bill.
Consequently, Congress got the wrong message—the delusion that there is essentially a free fiscal lunch. Just since the year 2000 the public debt soared from $5.7 trillion to $30.9 trillion at present, a 450% gain. At the same time, however, interest expense grew by barely 80% during the same 22-year period.
That bit of arithmetical magic in which the debt grew nearly six times faster than interest expense happened because the weighted average cost of net debt service dropped from 4.0% at the turn of the century to just 1.3%. Then again, exploding debt coupled with collapsing debt service cost is surely one of the great financial parlor tricks of history, and one that is not only unsustainable, but certain to go into reverse during the years ahead.
Federal Debt Service Outlays (Yellow) Versus Federal Debt (Red), 2000-2022
In fact, CBO’s latest Federal spending projections tell you all you need to know. Even with its relatively moderate forecasted rise in treasury debt yields, outlays for interest expense are projected to rise by 200% over the next decade. That’s triple the projected
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