Trillion-Dollar Deficit Deja Vu

Debt and deficits mount as lawmakers remain addicted to borrowing and spending.

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Empty Wallet
Sukanya Tungsub/Dreamstime.com

After failing to pass any significant legislation during most of President Donald Trump's first year in office, the Republican-controlled Congress was finally able to pass a major tax reform bill in the waning minutes of 2017. But beyond not getting in the way of the administration's efforts to crack down on abusive federal regulations, the party that never missed an opportunity to bemoan the previous Democratic administration's profligacy continued to show little interest in addressing the country's spending-driven fiscal problems.

Will 2018 be any different?

The country is now $20.6 trillion in debt, and a return to the annual trillion-dollar budget deficits that occurred under the Obama administration is on the horizon. Regardless of how one feels about the Tax Cuts and Jobs Act, a lack of revenue is not what's driving the mounting federal debt. The main culprit is simple: The federal government has gotten too big, and lawmakers on both sides of the aisle have a seemingly insatiable desire to borrow and spend.

Indeed, Republicans and Democrats have enabled an unsustainable explosion in so-called "entitlement" spending (i.e., Social Security, Medicare and Medicaid) while routinely teaming up to bust budget caps that were intended to provide a modicum of control over federal spending.

Spending on entitlement programs now consumes 60 percent of the federal budget. That share will grow as baby boomers continue their march toward retirement. Social Security, which is the federal government's largest program, has already been running a permanent cash flow deficit since 2010. Unless Congress intervenes, benefits will have to be cut by 25 percent in 2035 (or sooner, depending on the economy and other factors). Medicare is in even worse shape, and Medicaid isn't far behind.

Putting our country on sound financial footing requires reforming these programs in a way that reduces costs. There is no avoiding it, but the longer policymakers wait to act the more difficult it will be to tackle the problem. Yet at the end of December, Senate Majority Leader Mitch McConnell announced that he is unlikely to even discuss Social Security and Medicare this year. Not helping matters, President Trump appears to remain committed to his politically convenient campaign promise to not touch Social Security or Medicare while in office. Like most Republicans, he also supports further increasing military spending under the childlike notion that the bigger the price tag the better.

The Trump administration decided to start off 2018 with a push for a package on infrastructure that will assuredly require more spending and debt. That additional debt will be of little concern to most members of Congress, given the opportunities that infrastructure legislation offers to shovel federal funds to various special interests back in their district or state. And given that this is a midterm congressional election year, it's not much of a surprise that Republican policymakers are more than interested in starting off the year by further opening the federal spending spigot.

Like the average Democrat, the average Republican views federal spending as an opportunity to buy votes for re-election. With talk that the Democrats could win back control of one or both houses of Congress, the temptation for Republicans to get playful with Uncle Sam's credit card will be even stronger. Just look at the GOP's open desire to (once again) blow past spending constraints to lard up the Pentagon's defense contractor-friendly budget. Democrats will gladly go along, as long as non-defense spending gets to bust the spending caps, as well. That's a trade that too many Republicans will be happy to make.

As a result, I sadly predict that 2018 will bring more federal spending—much to the pleasure of the special interest creatures lurking in the Beltway swamp that campaign Trump said he would drain. What Congress does with an infrastructure package in the early going will be telling. Preliminary policy announcements made by the Trump administration on infrastructure spoke of a need for market-based reforms. That offers a bit of hope, but I wouldn't count on it too much, given the growing desire in Congress to spend, spend, spend.

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  1. Huh MAGA or WINNING IDK oh yeah FUCK YOU CUT SPENDING

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  2. Before I understood the central bank game, I too was concerned with the national debt. Then, the Fed’s actions in 2008 made all things clear. As we all know, the Federal Reserve creates money out of thin air. Amusingly, the Fed’s “money” is now a digital symbol representing a paper symbol that once represented a metal symbol of something real and tangible. Anyway, the Fed absorbed something like $14.7 trillion dollars of debt from those banks “too big to fail” then re-issued electronic symbols at near zero interest rates to those same irresponsible fractional-reserve lending institutions. Boatloads of cash was loaned to corporate America and the Dow Jones continues to skyrocket. The whole show is an illusion that works because it must work or the walls come tumbling down. When the US Debt reaches an unsustainable amount, the Federal Reserve will do exactly the same thing for the US Treasury. The central bank serves the powers-that-be and those who control the money supply control the world.

    1. AUDIT THE FED!

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    2. No, this has been explained at me by several progressives: the U.S. has infinite credit! Yay!

      1. I always thought we had infinite credit because of we has so many nuclear fu**ing weapons.

        1. Basically. No one is really in a position to break our kneecaps if we don’t pay up.

      2. yeah, explained by people who have no idea how to properly manage debt.

        Duh, I got $15,000 in credit card debt, it’s the fault of predatory lending!

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  3. Whenever politicians-be they Republican or Democrat-talk about deficits or the debt they’re talking out of their asses. They make no effort to bring spending in line with the revenue that’s actually available, and they mock those who expect them to. “Gubmint spending is different” they insist.

    1. and they believe that Government spending can improve the economy or ‘create jobs.’

      Economic illiterates.

  4. Thank God the fiscally conservative party is in control. Expect some big changes, any…. day…. now.

    1. “We’ve got a lot of work to do in cutting spending.” – Paul Ryan

      “You have got to generate economic growth because growth generates revenue. But you also have to bring spending under control. And not discretionary spending. That isn’t the driver of our debt. The driver of our debt is the structure of Social Security and Medicare for future beneficiaries.” – Marco Rubio

      They are far from perfect and I wouldn’t go so far as to say they are the party of cutting spending, but they are at least *talking* about cutting spending. There is at least the acknowledgement that tax cuts, spending, and debt are all tied together. As opposed to the other side which knowingly enacts an acknowledged money pit and then insists that we have a responsibility to continue shoveling money into it, budgets be damned.

      1. “but they are at least *talking* about cutting spending. ”

        If you could palpate my relief, it would be palpable.

      2. Yeah – GOP is this close to putting together an actual committee of highly respected semi-retired poobahs to talk even more about cutting spending and maybe even issue a report of what they talk about. Donuts will of course be provided. Lobbyists will be invited to – well – talk about their spending too and offer suggestions about how their spending plans can align with spending cuts elsewhere (or maybe tax cuts). Or maybe they will open a career day booth with all the million-dollar jobs they have to offer semi-retired political poobahs.

        A wonderful time will be had by all. You are not invited.

      3. Stated preferences and revealed preferences and all that jazz.

        But sure, maybe *this* time they actually mean it, unlike every previous time when they didn’t.

      4. At least my brother-in-law *talks* about not beating my sister anymore. As opposed to other potential husbands who insist on continuing beating their wives.

        1. I’m only 72 years old, but I can’t remember ANY political candidate who DIDN’T say they wanted to cut spending and lower the National Debt.

          I also can’t remember ANY who actually did.

          SSDD.

  5. Interest rates are still incredibly low. What’s the evidence to say that the debt matters, kind of at all but especially now? America creates its own currency, and the reserve currency of the world. Practically speaking, our debts could be astronomical before we suffered any ill-effect.

    1. A million millions is not astronomical?

      1. Not for a country with a ~3T in annual revenue. Not for a country that prints its own money. Deficit hawk arguments often boil down to “holy toledo, that’s a big number! That must be bad!” Not a great argument.

        1. I’m not making that argument. I’m just saying that 20,000,000,000,000 is astronomical. Literally. See Jerry’s comment below.

          1. Size is always relative. The distance from the sun to alpha centauri is huge compared to the scales humans operate at, but it’s pretty small on a galactic scale (much less universal).

            1. “”Size is always relative.””

              Sure. When you look at the size of our debt relative to the size of debt, it’s pretty damn big. You really don’t think having a debt that is 7X bigger than your gross income is big? Or that the interest payment on the debt is roughly 17% of your total income which doesn’t include paying back any of the principle.

              1. When I bought my home in Silicon Valley in 1979, the selling price was twice what I sold my previous house in NJ and the mortgage (debt) I’d signed up for was about 3X my gross income.

                And, as the bank agent said, I got “the last mortgage in Silicon Valley Under 10% at the time — 9.75%, to be exact. Horrible by today’s standards? Maybe. But I ended up paying the mortgage off after about 20 years and never missed a mortgage payment in between.

                As for the National Debt, it’s not the size of the debt versus GDP that counts, any more than the size of my mortgage versus my gross income, even back then.

                It’s whether tax “income” of the government can cover THE INTEREST PAYMENTS and what percentage that interest is of the GDP or the tax revenue.

                Arguments?

            2. Let me put it another way. If you are comparing debt, to the distance between solar systems, you’ve got a problem.

              1. The amount of cells in our body expressed as miles would get someone pretty far, at least at the solar system level. Somehow, I don’t find that to be a compelling argument that we have too many cells.

                Like I said, deficit hawk arguments boil down to “that’s a big number.” That’s not a good argument.

        2. I don’t know the exact numbers but 3T in and 4T out is problematic.

          1. Again, that’s not a Debt issue, that’s a Spending versus Income issue, or, in words Trump might know, “Balance of Trade on the level of ‘inside your own country’!”

      2. A trillion here, a trillion there, pretty soon we’re talking real money here.

    2. 20 trillion *is* astronomical. It’s roughly the distance in miles from the Sun to Alpha Centauri, a distance normally given in light-years because 20 trillion is simply too huge a number to comprehend.

      1. See my response to sarcasmic

        1. See my non response to sarcastic

          FIFY

    3. Deficit hawk arguments often boil down to “holy toledo, that’s a big number! That must be bad!” Not a great argument.

      That’s funny because that’s not usually what they say. They usually point out that the number is big relative to the $3T. Some even point out that the $3T is pretty ridiculously immoral to begin with.

      Acting like $20T *isn’t* a big number inherently reinforces the position that the government is producing or has produced a commensurate amount of value. Which is demonstrably untrue at pretty much all levels. At the very least, it ignores the distinct possibility that our debt doesn’t have to get astronomically high for us to suffer its ill effects.

      If the revenue were $3T and the debt were $3T or even 6, you have a more reasonable case that value is being generated and expectations are being met. The fact that we’re at 7X and growing indicates that we aren’t getting back the same value from spending and likely can’t continue to just expect to. I don’t know what sources you’re reading, but this is the overwhelming message I read.

    4. “Look back over the past, with its changing empires that rose and fell, and you can foresee the future too.”
      -Marcus Aurelius

  6. When? You’re living in the past, bro!

  7. As long as people buy bonds then it really doesn’t matter.

    Once people stop buying bonds then the system is totally fucked.

    1. People might stop buying bonds if there’s a civil war that literally splits the country in two (or three, or whatever). Even then, I don’t think it’s a given. I doubt there’d be an entirely economy-driven reason for people to stop buying American bonds.

      1. People will buy bonds until they lose faith in the ability of the government to pay them back. Or rather on the ability of the government to extract taxes from future taxpayers.

    2. ‘People’ don’t buy bonds. Treasury bonds only have one real purpose now – to be the ‘risk-free’ collateral that underlies all other financial ‘assets’ (esp derivatives). And until something else replaces them, they will continue to be bid for that purpose. Truth is – the financial sector would be more than happy to pay all the interest on those loans but they are even happier to bamboozle taxpayers into paying both the interest and assuming the principal risk.

      1. This!!!

        I’ve often argued with Leftists about the debt and the interest we are paying. These same Leftists also rail against the big banks and the evil of money in politics. While they have a point that money is a corrupting force, when I ask them who we pay interest to (the big Banks….), they don’t really have a way to explain that. “So you hate the banks because they make too much money, yet you want continue to shell out half a trillion dollars a year payable to the big Banks in order to buy votes with government programs?”

        1. ^ completely agree, and if you were to ask them, they’d eventually admit that they believe that the banks (or banksters) are just like Scrooge McDuck and keep all our deposits in a large building filled with coins and paper notes that they regularly dive into and swim just for the joy of it.

          They have NO concept of fractional reserves or that banks do NOT hold onto every depositor’s pennies, but lend them out to other people and companies who are willing to take risks to try to turn THOSE lent-dollars into profits and growth for the Borrowers!

          Even the ones who got mortgages from their banks. Economic Illiterates, and that kind of illiteracy is one of the hardest ones to try to fix.

  8. I’m pretty sure we’ll never cut entitlement spending, at least when it comes to social security, medical benefits to the retired, and support of genuinely disabled people. I’m not happy with that realization, but I can’t see any path that leads to eliminating or replacing those programs in any time frame that keeps the US solvent.

    I wonder what the odds are that some technical innovation will change the realities we have to work with. Nanobot robots maintaining our bodies thus eliminating the need for the medical profession. Robots or 3d printers reducing production costs to near zero. Virtual worlds simply eliminating old people (believe me, if I could live in a virtual world where I was 24 years old again, I’d take it in a heartbeat).

    I’m an optimist and believe in innovation. The question is how difficult the control freaks will make the path leading to the future I believe in.

    1. As I’ve been saying for a couple decades, entitlement spending like SocSec has never been adjusted SUFFICIENTLY to account for inflation and life expectancy.

      Problem today is: anyone who Wants a Solution also wants it to be effective by, say, next Thursday. It took two or three generations to dig that hole but nobody is willing to phase in any kind of “cure” over any reasonable time frame.

      If SocSec were made voluntary, for one thing; if there were an alternative you could choose instead; if you could split your ‘retirement plans’ between SocSec and an alternative; if retirement age were increased by One Year every two or three years until it matched the 62-65-year expectancy when SocSec started; if SocSec itself were to be completely phased out, but over a period of 20-40 years at, say, a rate of 2.5-5% per year so everyone still in it at any time would have a decade or three to adjust to the eventuality…; if your contributions didn’t have limits or caps;…

      etc., etc… Tons of ways to “solve” the SocSec issue if anyone were to do some Critical Thinking and Reality-Checking…

      I don’t expect any of my suggestions to bear fruit before I pass on.

      On the other hand, I’ve also been railing about “Critical Thinking is DEAD” for a decade or so, too, but in the past year or so, I’ve seen a LOT of comments and articles and mentions of people acknowledging the lack of it and attempts to resurrect it. Maybe there is some hope.

      Good luck to us all and our progeny.

      1. I agree with the notion of providing alternatives to SocSec and other federal programs and regulatory agencies.

        Hopefully the quality of the alternatives will allow them to thrive and supplant the federal programs, though the history of the USPS suggests that might not happen.

        Great observations – thank you!

  9. Will 2018 be any different?

    Yep. The Dems will retake congress.

    1. “”Yep. The Dems will retake congress.””

      Probably, and history may agree. Of course, they will make it sound like a great victory totally ignoring the fact that the party of the president that took power two years ago, often lose. In 2008 Obama won and the dems controlled the presidency and both house of congress. The dems lost congress in 2010. This is a common cycle.

  10. Fun quiz.

    Print out the last 52 federal budgets. Mix them up. Have an economist draw one from the deck and try to discern which Party was in power.

    1. That would be fun.

      1. I’d also suggest that a contest be created where not economists, but media outlets, be the contestants.

        Let’s see… NYT, LATimes, Huffpost, Fox, CNN, MSNBC, WaPo, etc… and see which one(s) of THOSE can get the highest score!

        Ladies and Gents… place your bets now!

  11. Yes the Fed is bad, and causes the business cycle. But the income tax is worse, as it is applied today. The libertarian/conservative establishment still does not understand the income tax.
    I don’t believe Veronique or Mercatus know the classical liberal public office duty tax even exists. They certainly don’t read the tax code with understanding ,or the 16th Amendment. They simply do not read the law in Title 26 with the macro framework understanding that hey, the income tax is a public office duty. Mandatory for those who earn money from the federal treasury, voluntary for those who earn their living from occupations of common right.
    IOW, the federal government has to ASK most Americans for money, ie “contributions”. Since WWII, however, the government has institutionalized civil asset forfeiture through taxation, WITHOUT CHANGING THE FUNDAMENTAL LAW. The Rights of Englishmen in 1791 includes the right to trial by jury in tax matters. The Notices of Federal Tax Lien and Notices of Levy are obviously FAKE LEGAL DOCUMENTS. The burden of proof should be on the government, not the individual. SAD! http://www.losthorizons.com

    1. Good luck with that strategy in court

      1. Yep, it’s been tried and everyone, so far, has lost that battle.
        Maybe LFRing should study some other ‘history.’ 😀

  12. No mention of military spending in this essay??
    I call B.S. !

    Obviously, apparantly, we can afford a bloated, oversized, and paradigmatically outdated military, we can afford to let a few thousand extreme millionaires and billionaires live at the top of the heap (personally I thing they are the real takers, We can afford tax cuts for corporations (as if Apple sitting on reported 150-200billion in cash needs it, or will share-pay its employees better) but we can’t afford healthcare or world class infrastructure, or some basic economic security for our citizens, I call B.S. again.

    The MIC and the gazillionaires have us by the gonads and are squeezing hard.

    This f***ked up nation is so broken.

    1. Don’t blame anyone or anything until you’ve asked WHY the problem exists.

      And odds are wonderful that your First Answer to that question will be Easy, Simple, Obvious and WRONG.

      Critical Thinking looks for the Question Behind The Question and may have to go five or ten or fifteen or more levels “deep” before coming Close to Root Cause… the REAL “cause of the problem.

      I guarantee it.

  13. We have to begin treating the deficit and the debt as two separate issues. Much of the damage inflicted on the U.S. economy since we went off the gold standard has been caused by issuing debt to fund the deficit, not by issuing fiat money itself. Interest payments on the national debt today amount to a steep $2,000 per year (and rising) for each person in the U.S. over the age of 18. This is not sustainable.

    The solution to our debt problem is simple: STOP ISSUING DEBT-BASED MONEY! Begin issuing pure “unbacked” fiat money to fund the deficit, rather than going further into debt. The inflationary impact of unbacked dollars is no different than the inflationary impact of the same amount of debt-backed dollars, and such a policy will halt the increase in the national debt and its crushing $430 billion in annual interest. Paying off part of the maturing debt each year and rolling over the rest should eventually bring the national debt (and its taxpayer-financed interest payments) down to zero. See http://www.fixourmoney.com .

  14. Washington won’t fix the problem until the states, the people, force them to. Please help. Under Article V of the Constitution, the people through the states can propose amendments to limit the Federal government. Twelve states have already signed on but a total of 34 are needed. Find out more here, scroll down past the sign up boxes for an explanation. https://conventionofstates.com/?ref=1102

  15. Social Security and Medicare are NOT ‘entitlements’! These are things that working people have PAID for! They are not give-aways or ‘FREE STUFF’ things, like welfare and food stamps! The fact that both programs are basically broke and running deficits (or soon will be) is NOT the fault of the beneficiarys! The blame for that rest’s solely on Congress! These programs were designed to be self-supporting! When Congress decided that it was OK to start ‘borrowing’ (stealing) from them is when they began to go down hill! As with ANY socialist plan, once the govt discovers that they can ‘borrow’ the funds the plan begins to suffer until there is nothing left for the recipients. We are rapidly approaching that point, now, with both the SS funds and with Medicare! Medicare has been bastardized, allowing people to use it who never paid ANYTHING into the system! This guarantees that it will soon collapse, once all the paid-in premiums have been depleted!

    In no way can you call them ‘entitlements’!

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