Some people do not think that $31.4 trillion of debt is enough. Some want to continue adding $2 trillion of annual deficits (and increasing) each year until the interest payments alone are crushing us in the near future. This is the debt default that we are facing. The only way to fix this is to force a budget that’s balanced or to take a small step in the right direction by refusing to add more debt. It’s now time for Republicans to get the message across.
No matter how high the debt limit is, defaulting on your obligations is a long-term issue.
We will not only face national bankruptcy if the government does not trim its spending, but also default on our debts if the debt isn’t reduced, regardless of the debt ceiling. COVID’s destruction of the US economy, and the biblical flood of debt and spending that resulted from those policies finally ended the government Ponzi scheme. Interest rates for treasuries are likely to rise and remain high for many years. The Federal Reserve will no longer be able to service huge amounts of debt at a low cost. With 5% interest, the annual cost of interest on our debt will soon exceed $700 billion and surpass military spending.
At the end of the budget window, the projected deficits will increase from an inconceivable $1.5 trillion to over $2.2 trillion. The CBO estimates that the cumulative deficit for the period 2024-2033 will be $20,2 trillion. We know that these numbers are always revised upwards every year. This is not about the solvency or lack thereof of Social Security. We will not even reach the point of a Social Security Crisis, as the interest payments on the debt, combined with inflation, stagflation, and accelerated interest rate payments, will render us insolvent in a few short years. CBO reported that during the first seven months of this fiscal, “the biggest single increase was net outlays for the interest on the government debt, which increased by $107 billion or 40 percent.”
Not only is there a public debt problem, but also a personal debt issue. The cost of living is rising faster than wages, so the average family cannot afford to buy food, fuel, or pay for housing and health care. What happens when interest rate increases coincide with rising costs of living? Let’s take housing as an example. Mortgages on median-cost houses are more than twice as high today as they were three years ago. Mortgage rates have also doubled while home prices are up by 56%. This is a recipe to price out a whole generation of first-time home buyers.
The mortgage payment needed to buy the median priced home for sale in the US has moved up to $2,566, a new all-time high. pic.twitter.com/K4tFDKMQw8
— Charlie Bilello (@charliebilello) May 13, 2023
The GOP must convey that the debt is the real problem, and not the debt limit, just as you wouldn’t blame traffic accidents on red lights or stop signs, which are necessary to keep people safe. The debt ceiling could be permanently removed tomorrow, but that wouldn’t make a difference because this musical chairs Ponzi scheme is over.
Biden’s default is not a short-term risk unless he deliberately defaults
Inaction is not an alternative. We must perform surgery immediately. But if we play the Brinksman, it will lead to an immediate default. Nope! Only if Biden deliberately defaults. Treasury Secretary Janet Yellen incorrectly stated that if Congress does not issue additional debt authority this month, we will default on “some obligation,” whether it is Treasuries or payments to Social Security beneficiaries. This statement is false, as there are enough revenues to cover the federal government’s funding needs by three quarters.
This is the math on the back of an envelope: the Treasury receives enough revenue to cover about three-quarters of the $6.8 trillion budget Congress approved last year. In this sense, the debt limit creates an instant budget that some estimate will start to become due by June 15. Revenues are $4.8 trillion. Net interest on debt is $663 billion. As long as the government continues to pay the interest, the debt will not default. Period. What about the other payments? What about other payments?
- Social Security: $1.3 trillion;
- Medicare (net, minus offsets): $820 billion;
- Defense: $800 billion;
- Veterans’ programs: $173 billion.
It is a simple fact that the money is there to cover these programs, interest on debt, and the Medicaid program. There is still about $1 trillion to spend on discretionary agencies or Medicaid. The monthly and weekly revenue and expenditures are more relevant, but the rough sketch shows that there is enough money to cover the top obligations, while a national discussion takes place about how to allocate the remaining funds, and whether we should borrow more to finance other spending. This scenario does not result in a default, but rather a government shutdown. Given the way our government agencies behave, this would be ok. These agencies would be shut down.
According to the CBO for example, expenditures at the Department of Education were 56% more this year than they were last year. This is not the case. The FDIC’s expenditures increased by $39 Billion over the same time period due to the bank bailouts which weren’t intended to be bailouts. These agencies should be shut down until we can agree to fund them modestly.
Either we do it now when we are in a stronger position or later on when debt and inflation will be even worse. Once stagflation has dried up our ability to service our debt and also dried up tax revenues, we will be forced into balancing the budget. We will see revenue drop even further if we delay. Total receipts have fallen 10% since last year, despite an increase of 12% in government expenditures. The April tax day revenue was very disappointing. The inflation bubble created by the debt we’re debating is crushing the economy, and dampening tax revenue. The crushing debt affects revenue as well as expenditure.
US retail sales increased 0.5% over the last year, the lowest growth rate since May 2020 & well below the historical average of 4.8%. After adjusting for inflation, though, the story is far worse. Real retail sales fell 4.2% over the last year, the 6th consecutive YoY decline. pic.twitter.com/pWFvh6g3fp
— Charlie Bilello (@charliebilello) May 16, 2023
Instead of blaming Biden and talking about the need to avoid default, Republicans should pass legislation that forces the Treasury to prioritize payments, starting with the interest on the debt and then moving down the list. The default issue will be removed from the discussion and we can focus on the real problem. It’s not even that long-term.
Consider the words spoken by Barack Obama in 2006 when he explained his vote against an increase in the debt ceiling that was eventually signed into law by President George W. Bush.
Increased debt in America weakens the country both domestically and globally. Washington shifts the responsibility for bad decisions today to our children and grandchildren instead of being a leader. America is in debt and has failed to lead. Americans deserve better. I will therefore oppose any attempt to raise the debt ceiling of America.
The debt was $8.6 trillion at the time, which is a little over a quarter less than it is now. When and where is the buck going to stop?