No One Cares About the National Debt, Right?

Writing an article about the national debt is ridiculous. Nobody will read it, fewer will understand it. And those who do will have a knee-jerk reaction to it. It matters or it doesn’t matter.

For going on 40 years, doomsaying fiscal hawks have warned that piling up the national debt will lead to runaway inflation — Venezuela on steroids. But so far, the warnings have not become reality. And after running up a national debt that exceeds the gross domestic product for the first time since World War II, and routinely running trillion-dollar government deficits, all the doom and gloom predicted for overspending has failed to come to pass.

But John Cochrane, an economist at Stanford University’s Hoover Institution, makes the point that the debt doves must be right 100 percent of the time while the hawks fear being right only once.

Reason:

As a fiscal hawk, Cochrane acknowledges that his doomsaying has been wrong for the past decade, but he says that doesn’t mean he’s wrong now.

“I live in California. We live on earthquake faults.” Cochrane says. “We haven’t had a major earthquake, a magnitude nine, for about a hundred years.” It would be foolish to consider someone a doomsayer for preparing for an earthquake in California, he says, despite the fact that major earthquakes aren’t a common occurrence.

“That’s the nature of the danger that faces us. It’s not a slow predictable thing,” says Cochrane. “It is the danger of a crisis breaking out. So I’m happy to be wrong for a while, but that doesn’t mean that the earthquake fault is not under us and growing bigger as we speak.”

The libertarian economist Murray Rothbard once wrote that when economists started telling politicians that it was the “government’s moral and scientific duty to spend, spend, and spend,” they went from being the “grouches at the picnic” to in-house yes-men.

[Jason Furman, who chaired the Council of Economic Advisers under President Obama] says that unlike advocates of Modern Monetary Theory, which posits that near-unlimited government money creation and spending are possible without dire consequences, he recognizes that there are limits. But he believes we are using the wrong metric to gauge the magnitude of the problem.

Indeed, Furman believes that rather than actual numbers — $22 trillion in debt climbing to 202 percent of GDP by 2050 — we should be looking at “stabilizing” the debt.

“The question is where do you want to stabilize the debt,” says Furman. “People used to think it should be 30 percent of GDP. Is that what we need to do in order to be safe? I think if you’re asking that question without looking at interest rates, then you’re in danger of a very incomplete answer.”

Most people acknowledge that there are limits but they envision slow, steady warnings. That you’ll see the problem coming and you’ll have plenty of time to fix things,” says Cochrane. “And I looked through history and I noticed that when things go wrong, they go wrong in a big crisis.”

What kind of “crisis”? We had a credit meltdown in 2007-2008 that nearly crashed the entire world economy. Now we’re dealing with the pandemic recession that is also worldwide and may be the tipping point for some countries. Just what would it take to set off a round of hyperinflation in the U.S.?

It should make us all uneasy that our current fiscal situation is totally dependent on much of the world staying relatively stable. History shows us that’s folly. With the entire planet connected, we’re even more vulnerable to disruptions than in the past.

For now, wishful thinking rules in Washington.

Rick Moran, PJMedia

We Don’t Need to Accept the “New Normal”

Listening to the media today, one sometimes hears the phrase “new normal.” The dictionary defines normal as “conforming to a norm or standard.” That means it is society that determines what is normal and what is not, depending on what is happening in the country.

As we begin 2021, with the usual hope and optimism, we must reflect on the year which has just passed, for 2020 also began on an extremely positive note. The economy was roaring, factories and jobs were coming back to America, the stock market was doing well, and unemployment among minorities and women was at the lowest rate ever recorded. Then “the plague” struck at the end of January, and subsequently, our world came crashing down around us; a situation which was only aggravated by George Floyd’s death.

All of us have seen and heard things during this past year that would have been unimaginable in 2019, but which today are almost a daily occurrence. We call these transformative events “the new normal.”

Examples of the new normal are all around us and affect all aspects of our lives. Defunding the police while crime skyrockets is the new normal. Prisoners being released back on the streets, while hairdressers and restaurant owners are fined and sometimes jailed, is the new normal. Big tech and mainstream media shutting down all voices opposing their agenda, while extolling the virtues of democracy and free speech, is the new normal. A CNN reporter describing demonstrators as “peaceful protesters,” while behind him the skyline burns, is the new normal. Closing down all restaurants, houses of worship, and small businesses while allowing protesters to burn, riot, and loot in the name of “social justice” is the new normal. Prisoners in certain states receiving the COVID vaccine while vulnerable seniors must wait is the new normal. The latest COVID Relief bill, which included only a paltry sum in relief for tens of millions of desperate Americans, while granting billions in foreign aid, is the new normal.

Apparently, our elected representatives in the House and the Senate believe the Sudanese national debt and the education of women in Pakistan are more important than their constituents. The late publisher William Randolph Hearst addressed this very issue nearly a century ago, on May 7, 1924, when he wrote: “The day when this nation ceases to shape its foreign policy primarily for the safety and welfare of the American people will be the day on which its national doom is sealed – and its international doom too.” These are only a few of the many examples of the new normal that assault and numb our senses daily.

If there is one issue that stands out in terms of importance, it would be defunding or re-imagining the police, for no civilized society can function without order, safety, and security. It is no accident that the “peaceful protesters” have made the police the number one target for vilification. This is especially true in blue states and cities where state and local governments, along with radical district attorneys, have acquiesced to all the protesters’ demands, refusing to prosecute them for their crimes and allowing them free rein to do exactly as they wish. This has resulted in their states and cities sliding even further into chaos and anarchy, as their tax base continues to move away in ever-increasing numbers.

Any normal person would stop and re-think their failed strategy but not these people. If anything, they double down on their ideology. Some might conclude they are irrational, but there is a method to their madness. It is a method that has been used before.

During the heyday of the Cultural Revolution in China, mobs of Red Guards rampaged through the streets of Beijing and other Chinese cities unencumbered by any police restraint. They assaulted anyone they deemed counter-revolutionary. Bloodied and beaten, with placards hung around their necks denouncing them for their crimes, these hapless individuals were hauled before a forum called a “struggle session” where various individuals, sometimes even their own children, would take turns denouncing them for every imaginable offense, up to, and including, “thought crimes.” The actual number of people killed during the Cultural Revolution is unknown, but it is believed to be in the millions. The purpose of all this was twofold. The first was to solidify Mao’s position as absolute ruler of China. The second was to cow an entire population into submission and obedience through fear, terror, and intimidation. It is a very effective tactic. Every single totalitarian state throughout history has used similar methods to ensure its continued rule.

The U.S. is on the verge of becoming a country in decline, ceding to China the position of dominant world superpower. One could say that this is part of the ebb and flow of history. Every single great civilization from the Greeks, Egyptians, and Romans in ancient times to the Aztec, Inca, and Mayan civilizations in our own hemisphere has gone through this process. Even the once-mighty British Empire, which at one time controlled a third of the world, and of whom it was said, “The Sun Never Sets On,” has withered away into near obscurity.

If you were to “time warp” back to Moscow in 1990 and tell the first Russian you met that within a year his country would implode, he would look at you as if you were crazy. The collapse of a great civilization can occur slowly over time as it did with Rome and Britain, or it can happen suddenly, as with the Soviet Union. Great civilizations go through an aging process and right now, ours is looking very old.

However, aging doesn’t mean dead. We can buck the historic trend. It’s true that we have forgotten the ideals that once made us great, and replaced the “old normals” of liberty, individual responsibility, equality, and unity with the “new normals” of identity politics, wokeness, cancel culture, and critical race theory.

In a speech on May 14, 1920, over a century ago, President Warren G. Harding warned the nation that: “America’s present need is not heroics but healing; not nostrums but normalcy; not revolution but restoration.” It’s time again for Americans to assert normalcy and restoration. And then, yes, America can and will be great again.

Caren Besner is a retired teacher who has written articles published by American Thinker, Sun-Sentinel, Dr Swier, News With Views, The Front Page, The Published Reporter, Washington Examiner, The Algemeiner, Jewish Journal, Independent Sentinel, Jerusalem Post, Arutz Sheva, San Diego Jewish World, The Times of Israel, The Moderate Voice, IsraPost, The Jewish Voice, Joo Tube, The Florida Veteran, and others.

COVID Relief Bill Is the Latest Loss of Liberty for Americans

American Consequences

Earlier this week, right before Christmas, Congress passed a 5,600-page COVID-19 relief bill that no one could have the time to read in its entirety.

The bill, which the Senate Historical Office said appears to be the longest bill ever approved, was handed to Congress only a few short hours before a vote was scheduled to be held, forcing representatives to quickly scan the document and make a decision without knowing the ins and outs of the bill.

Some members of Congress even took to social media, calling the document a disservice to the American people and noting how their teams were going through the PDF using the “CTRL + F” function to find important information – ridiculous!

And let’s not forget that American citizens are supposed to be able to review the proposed bill as well, giving them time to go to their local representatives to share their thoughts.

Yet by the time it got released for review, we had less than four hours. I certainly can’t read almost 6,000 pages that quickly… Can you?

This is a clear loss of American civil liberties. I had the pleasure of talking with former congressman Dr. Ron Paul this week on the American Consequences podcast. We spoke about how this isn’t the first time Americans have lost their liberties due to the coronavirus, and it won’t be the last…

So far, we’ve lost the freedom to choose to go out when we want to, and the simple freedom to choose if we want to eat somewhere for dinner… We’ve lost the ability to see our friends and family for the holidays, risking potential repercussions for gathering in our own homes. Now, we’ve lost the right to read a bill before it passes.

How can American citizens stand up for their rights with a government that acts this way?

As the virus becomes more and more politicized, lawmakers can push through bills and demand regulation that actively hurts American citizens.

American citizens are being forced to close their businesses, sometimes permanently, while the very people passing these laws have not missed a paycheck since the quarantine began.

But at least $600 to every American citizen should help…

Oh, and let’s not forget $600 to non-American citizens in America as well. Because this new bill, unlike the first relief bill, allows for mixed-status households to also receive the stimulus checks. That’s just one of the many small changes that were pushed through in this fast-vote bill.



President Trump ripped apart the relief package, arguing the legislation includes measures that have nothing to do with COVID-19 and the stimulus checks are far too small to actually help struggling Americans.

Now that the bill has been voted on and the people have had a chance to really dissect it, a few other important pieces of information have come to light.

Victor Davis Hanson, senior fellow at the Hoover Institute, also joined me on my podcast this week to discuss the interesting, and somewhat frightening, laws that have made their way into this bill. Here are just a few highlights:

  • $1.3 billion for the Egyptian military, which will fund the purchase of Russian military equipment.
  • A block of President Trump’s plan to merge functions of the Office of Personnel into the General Services Administration.
  • $40 million to the Kennedy Center in Washington, D.C. (which is currently closed!).
  • Illegal streaming is now a federal crime instead of a misdemeanor.
  • $33 million to Democracy efforts in Venezuela.

I am the first person to agree with aid toward Venezuela after all that country has been through as it’s moving toward democracy. But is right now the best time to be spending $33 million of taxpayer money?

Victor and I both agree – now is the time to focus on assisting our own citizens… The stability of our national economy depends on it.

Victor even outlined the potentially disastrous effects of moving forward with so much fiscal stimulus.

“We can’t lower interest any more,” he says, commenting on the fact that it’s hard to borrow any more money while we’re already approaching an enormous amount of national debt.

Instead of locking down businesses and taking away our civil liberties, now is the time to open up the economy. And rather than send so much money to foreign efforts, we should be focusing on reinvesting in the American economy.

But at least now, thanks to the impending stimulus checks, people living in the U.S. can afford to pay for Netflix to avoid federal jail time…

Trish Regan, American Consequences


Recommended Link:

I Put $30,000 of My Kids’ College Fund Into This Controversial Asset


Read our latest issues of American Consequences by clicking here.

Love us? Hate us? Let us know how we’re doing at feedback@americanconsequences.com.

Regards,

Overstretch: The Long Story of Staggering U.S. Debt

If the past year was dominated by the huge human costs of COVID-19, the next few years will be about its economic aftermath, including the alarming rise of US debt. What’s needed is multilateral cooperation – a new ‘Grand Alliance.’

On Friday, Congressional leaders failed to secure a bipartisan deal on a $900 billion pandemic relief package. A government shutdown was avoided only with a 2-day extension.

A protracted shutdown would amplify the risks for pandemic escalation and economic crisis, amid the long-awaited vaccine rollout. Bipartisan tensions are compounded by the impending Georgia Senate runoff races in January that will determine control of the chamber in the Congress.

In 2019, the Congress suspended the debt ceiling until after the 2020 presidential election. While it sought to avoid a repeat of the 2011 and 2013 debt crises during an election year, new spending contributed to Trump’s new military rearmament drive.

The new Congress must decide the future of the debt ceiling by summer 2021.

Q3 2020 hedge fund letters, conferences and more

High US Debt Burden

By the year-end, COVID-19 cases worldwide will be close to 80 million. As a result of utter mismanagement, US figure will be close to 20 million.

While the pandemic continues to spread and the health system is overwhelmed, the Trump White House has taken record amounts of debt in record pace.

During his campaign, Trump pledged to eliminate US national debt in 8 years. At the time, total public debt was $19.6 trillion. In the past 4 years, it has soared to more than $27 trillion, by almost $8 trillion. It was an achievement of sorts. What former President Obama achieved in 8 years, Trump did in just 4 years.

Of course, all major Western economies have taken record amounts of debt during the global pandemic. But United States is not like other economies. First, it has more COVID-19 cases relative to all other major economies. Second, US remains a world anchor economy. Third, US dollar dominates international transactions. As a result, excessive US debt will have disproportionate global spillovers.

How will the Democrats cope with the debt burden?

Instead of focusing on the size of US debt, says Jason Furman, Obama’s former head of the Council of Economic Advisers, “policymakers should assess fiscal capacity in terms of real interest payments, ensuring they remain comfortably below 2 percent of GDP.” That, Furman believes, would ensure adequate fiscal support and needed public investments, while maintaining a sustainable public debt.

Here’s the logic of the argument: As a share of GDP, the cost of servicing US debt has fallen since 2000, even as federal debt has increased. An environment of low interest rates makes it easier to pay off debts.

So, Furman argues, the Biden administration can manage primary deficits (noninterest spending minus revenue) without “an unlimited explosion of debt.”

Short-Term Gains, Long-Term Challenges

That’s likely to be the stance of the Biden administration’s proposed economic team, which will stress both growth and equity.

The team includes former Fed chief Janet Yellen as the new Secretary of Treasury, her former right-hand man Jerome Powell as current Fed chair, and labor economist Cecilia Rouse as chair of the Council of Economic Advisers (CEA). CEA members feature Jared Bernstein, Biden’s chief economist in the Obama era, and Heather Boushey, the cofounder of the Washington Center for Equitable Growth.

Nevertheless, the likely policy stance, whether implicit or explicit, is predicated on unsustainable debt-taking in the future.

According to the recent projections by the nonpartisan Congressional Budget Office, federal debt held by the public will surpass its historical high of 106% of GDP in 2023 and will continue to climb in most years thereafter. By 2050, debt as a percentage of GDP will amount close to 200% of the GDP. Despite peaceful conditions, it is already at the level of World War II; by 2050, it could be twice as high (Figure 1).

Figure 1 – US Debt Held by the Public, 1900 to 2050 (as % of GDP)

US Debt

Source: Data from CBO (Sept 2020)

Worse, US debt is likely to increase faster than anticipated. Current projections do not include the full costs of the pandemic stimulus packages, or the “needed public investments” that the Biden administration will seek to promote.

What will be good to the US economy and global prospects in the short-term could prove highly detrimental to both in the long-run.

Here’s why: Deficits will more than double from an average of 4.8% of GDP from 2010-19 to 10.9% percent 2041-50 driving up debt. As a result, net spending for interest will account for much of the increase in total deficits in the last two decades of the projection period.

Markets plan on quarterly basis. Presidential terms have barely a 4-year perspective. As a net effect, long-term perspective is lost in the translation. In CBO’s projections, growth in outlays will continue and accelerate to outpace growth in revenues, resulting in larger budget deficits over the long run (Figure 2).

Figure 2 – Percentage of GDP: Outlays Vs Revenues

US Debt

Source: Data from CBO (Sept 2020)

So, what about those “sustainable” real interest rates? Measured as a share of GDP, net spending for interest could nearly quadruple over the last two decades of the projection period.

From overreach to new ‘Grand Alliance’

In addition to US banks and investors, the Fed, state and local governments, mutual funds and pension funds, foreign governments hold a third of the US public debt. The largest holders include Japan ($1.3 trillion), China ($1.1 trillion), and UK ($430 million). To cope with its soaring debt, US will depend on these contributions.

However, Japan is the world’s most indebted major economy (government debt to GDP exceeds 238%). Due to maturing, aging and population decline, its burden will continue to increase, while the Brexit costs will penalize UK economy for years.

Biden administration has promised to be tough on China, Russia and several other countries, which could translate to rising defense and security allocations – which, in turn, would further amplify soaring debt, twin deficits and real interest rates.

When great powers fail to balance wealth and their economic base with their military power and strategic commitments, they risk overextension, as historian Paul Kennedy warned in the late ‘80s. In the coming decades, that will be a key US risk.

Nothing is inevitable in life, however. There is a great opportunity amid the rising threats. That’s multilateral cooperation across all political differences among the world’s largest economies. It has been achieved before, and it could be achieved again, as evidenced by F.D. Roosevelt’s ‘Grand Alliance’ during World War II.

In the 1940s, war threatened to result in excessive debt. Today, excessive debt risks wars that will have no winners.


About the Author

Dan Steinbock is the founder of Difference Group and internationally recognized expert of the multipolar world economy. He has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/