There will be no debt default despite what you hear on the news.
This will be true even if no agreement is reached on raising the debt limit ceiling in the next week or two.
There is plenty of cash coming in to pay interest on the debt and any maturing debt owed by the federal government.
To argue that there will be a debt default is like arguing that if your credit card company refuses to raise your credit limit that you will be in default on your mortgage, car loan or credit card balance.
The fact that your credit card limit is not increased may mean that you no longer can continue to spend profligately on nights on the town, buy new designer outfits ever week or take the vacation to Cabo that you planned.
You may have to cutback your discretionary spending but you would be a fool to refuse to pay your monthly mortgage or car payment because the credit card company refused to give you a higher credit limit.
This is the reality of the debe ceiling discussions.
House Republicans have simply stated that they will not agree to a further increase in the debt ceiling limit until Biden and the Democrats make some modest concessions on future federal spending.
It would be akin to the credit card company telling you they are not going to raise your credit card limit unless you agree to bring your spending a little more in line with your income.
Let's put all of this in context.
(All of these numbers are from the CBO's "Budget and Economic Outlook 2023 to 2033")
In the 2022 budget year, the federal government had revenues of $4.9 trillion.
Outlays for the year totaled $6.2 trillion.
That amounted to a $1.3 trillion annual deficit. The federal government needed to borrow that amount to pay all the bills,
Current budget forecasts of the Congressional Budget Office project that federal revenues will increase by 45% in the next ten years to over $7 trillion.
However, outlays are forecasted to rise from $6.2 trillion to almost $10 trillion in 2033.
That would leave a budget deficit that is $2.7 trillion in 2033---over twice as large as now---despite revenues increasing by almost 50%.
The debt ceiling limit is currently set at $31.4 trillion.
Current projections are that the federal debt level would grow to $58 trillion in 2033.
Keep in mind that these projections assume that inflation will return to 2% or lower for most of the next 10 years.
 |
| Source:https://www.cbo.gov/publication/58946#: |
The House Republican bill would trim spending by about $4.8 trillion out of projected spending of almost $80 trillion over the next decade.
If you had to cut back your spending by 6% would you consider that draconian?
The Democrat response is that any spending cuts are simply impossible and inhumane.
They argue that taxes have to be raised to close the deficit.
However, in 2022 federal revenues amounted to almost 20% of GDP. That is the third highest percentage in the history of the country. It is exceeded only by 1945 (fueled by a WWII income tax surtax) and in the year 2000 (high capital gains taxes due to the dot.com hysteria).
The long-term average has been around 17%.
On the other hand, federal outlays were 25% of GDP in 2022. Some of this is related to Covid spending.
However, even with Covid spending behind us, current budget projections show that spending does not drop below 23.5% of GDP for the next 10 years and will be at 25.3% of GDP in 2033.
I believe even a 5th grader looking at these numbers would understand this is simply unsustainable.
You cannot consistently spend more than you take in and continue to take on more and more debt before you will eventually hit the wall.
A day of reckoning awaits.
With it will come immense pain and suffering.
I applaud the House Republicans for using the leverage they have with the debt ceiling to attempt to get some concessions from Biden and the Democrats in delaying that day of reckoning.
In a perfect world Democrats would be as concerned about where we are headed with the debt load as Republicans.
That is not where we are today.
The Democrat party would simply not exist but for the government money it pushes out in a steady stream to its constituents for their votes.
Its power is extricably tied to spending.
However, as to the debt ceiling discussions, we have seen this movie before.
When the federal government runs out of ready cash because they cannot issue more debt, that means that only abut 80% of government outlays can be paid for.
You can be sure the Treasury is going to continue to pay Social Security and Medicare benefits.. Welfare and food stamps will get paid. Interest on the debt will be paid. The military will stay on the payroll and planes and ships will continue to operate in our defense. We will continue to send money to Ukraine. I would expect that illegal immigrants showing up at our border will still be given free cell phones and airline tickets into the heartland.
However, the Biden administration will make a big deal of closing national parks, telling government employees to stay home and anything else that will make a big show of the "government shutdown" that will cause inconveniences to American citizens.
Your tax return refund will be delayed. The passport you are waiting for will not arrive. The lines at airports will increase.
The mainstream media will dutifully report it is all the fault of unreasonable, extreme Republicans who don't care about the United States paying its bills and standing behind its debt obligations.
In the end, little will be gained. The debt limit will be increased. Federal employees who did not work will end up getting back pay for NOT WORKING.
As I said before, we have seen the movie before and we know how it ends.
As I stated in a previous blog post, I would much rather have seen the Republicans tie its border security bill to the debt ceiling limit. Add in cutting back on those 87,000 new IRS employees that the Democrats passed into law last year.
They need to put Biden and the Democrats on the defensive with proposals the average American understands and supports.
Would Democrats really want to shutdown the government because they are unwilling to secure the border and double the size of the IRS?
If the roles were reversed, what I am suggesting is the kind of thing the Democrats would be doing.
The Republicans are undoubtedly correct in trying to do something to bend the spending curve down.
The numbers above prove it. A massive fiscal disaster lies ahead.
However, the GOP only controls 1/3 of of the executive and legislative branches of government right now and it is a tenuous hold at that.
The reality is that you can do nothing if you are not in power.
Republicans should be playing the long game right now and save the heroics that will be necessary for later.
All signs are pointing to a recession on the horizon.
As of now, Biden and the Democrats are going to own it.
The GOP needs to make sure that they are far removed from any finger pointing that will inevitably follow.
And you can be sure that there will plenty of that.
It has been said that "discretion is the better part of valor".
In my view, that would be good advice for the Republicans to consider right now.
Once again, you are right on the sweet spot. The Democrats have ONLY one strategy, they will do anything to get votes, ie, the border crisis, plus spend, spend, spend, free stuff for everybody.
ReplyDelete