RIP: Fiscal Responsibility

This post RIP: Fiscal Responsibility appeared first on Daily Reckoning.

Republicans and Democrats have stowed their axes, sunk their differences… and agreed to raise the debt ceiling.

The government will remain in funds for the next two years — beyond the 2020 election, not coincidentally.

The Wall Street Journal reads the truce terms:

Congressional and White House negotiators reached a deal to increase federal spending and raise the government’s borrowing limit, securing a bipartisan compromise to avoid a looming fiscal crisis and pushing the next budget debate past the 2020 election.

The deal for more than $2.7 trillion in spending over two years… would suspend the debt ceiling until the end of July 2021. It also raises spending by nearly $50 billion next fiscal year above current levels.

Failing a deal, the Capitol lights would have winked out Oct. 1. And the federal government would have slammed its door on the noses of the American people.

Chaos and Old Night would have descended upon these shores…

A Rain of Horrors

The ranger at Glacier National Park would have been thrown into idleness…

The Federal Theatre Project would have been thrown into darkness…

And the bright-eyed sixth-grader from Duluth would have been thrown from the Smithsonian.

The last government shutdown (December 2018–January 2019), stretched 35 impossible days.

How we endured those black, unlit times… we cannot recall.

Yet our representatives at Washington have spared the grateful nation a sequel.

Absent a deal…

They would have been required to hatchet spending $120 billion flat, all around.

The arrangement instead raises spending caps some $50 billion this year… and another $54 billion the next.

Both Sides Claim Victory

The president declared the deal “a real compromise in order to give another big victory to our Great Military and Vets!”

With straight faces Nancy Pelosi and Chuck Schumer announced:

With this agreement, we strive to avoid another government shutdown, which is so harmful to meeting the needs of the American people and honoring the work of our public employees.

Democratic Sen. Patrick Leahy gushed the agreement will “stave off economic catastrophe.”

It will furthermore reverse “unsustainable cuts in nondefense discretionary spending.”

Just so.

The Real Meaning of Bipartisanship

The late Joe Sobran labeled Democrats “the evil party.” Republicans were “the stupid party.”

Thus he concluded that “bipartisanship” yields outcomes both evil and stupid.

Perhaps Sobran hooked into something…

Under the deal Republicans get their guns. Democrats get their butter.

And the taxpayer gets the bill.

He pays now through higher taxes — or later through higher interest payments on the debt.

But pay he will.

And so fiscal responsibility lies dead beyond all hope of recall.


We expect Democrats to spent grandly and gorgeously.

Since FDR it has read the identical electoral blueprint.

But Republicans traditionally existed for two purposes: to lower taxes — and to square the books.

You wished to spend money you did not have? And throw open the Treasury to the public?

“No!” was the answer you could expect.

Like a sour old schoolmarm with steel in her eye and a rattan in her hand… they might not have been popular.

But you knew where they were. And you could trust them with the checkbook.

But these Republicans are no more.

They have gone the route of fedoras, monocles and spats.

What Happened to the Old-time Religion?

They turned away from their old-time fiscal religion, made their peace with Big Government… and got elected.

They labelled the old religion “root canal economics.”

Republicans instead sat at the feet of Mr. Arthur Laffer, with his famous curve.

They could spend like Democrats without touching the taxpayer.

Deficits do not matter in the new catechism.

Only a few Republican holdouts remain… to keep the tablets.

Reports the Journal:

Fiscal hawks panned reports of the proposed deal Monday before many of the details had been released, warning it could add trillions of dollars more to projected government debt levels over the next decade. 

But they sob in vain…

Drowning in Debt

United States public debt excels $22.4 trillion… and swells by the day, by the month, by the year.

Federal debt presently rises three times the rate of revenue coming in.

To simply maintain current debt levels, CBO estimates Congress would have to increase revenues 11% each year… while simultaneously hatcheting the budget 10%.

Will Congress spend 10% less each year?

We have just received our answer.

For the long-term consequences we turn to the Brookings Institute:

Sustained federal deficits and rising federal debt, used to finance consumption or transfer payments, will crowd out future investment; reduce prospects for economic growth; make it more difficult to conduct routine policy, address major new priorities, or deal with the next recession or emergencies; and impose substantial burdens on future generations.

Deficits to the Horizon

Meantime, the present economic expansion is officially the longest on record.

Can the economy peg along another decade without a recession? Or even half so long?

We already detect smoke rising from the engine, and oil leaking out below.

Trillion-dollar deficits are already in sight.

In the certain event of recession, authorities will flood the economy with money borrowed from the future — deficit spending.

Deficits could double… or possibly triple.

What a Surprise

The only surprise about this debt ceiling deal?

That anyone could be surprised by this debt ceiling deal.

Republicans and Democrats might stage a splendid combat for the crowd. They batten upon each other with savage and vicious blows.

Mr. Trump’s gladiatorial presence makes the show grand beyond comparison.

But watch closer…

The combatants do not strike at the vitals. And the blood is fake.

When it comes to borrowing and spending… Republicans and Democrats are as united as any lovers could hope to be.

Threaten to cut them off.

Then watch the warfare immediately halt… and the hands of peace come extending from both sides.

This we have just witnessed. The debt ceiling is raised.

And so today we drop a mournful tear on the ashes of fiscal responsibility.

As we have noted before, Republicans once defended the approaches to the United States Treasury.

But they have since sold the pass.

And both parties have sold us all down a river…


Brian Maher
Managing editor, The Daily Reckoning

The post RIP: Fiscal Responsibility appeared first on Daily Reckoning.

Another Government Debt Crisis?

This post Another Government Debt Crisis? appeared first on Daily Reckoning.

The president has redrawn his March 1 line in the sand.

“Substantial progress” in trade talks with China is the reason he cited.

But another March 1 deadline menaces the United States… like a creeping shadow, dark, broad and doomy.

And Mr. Trump cannot push it back.

Details shortly.

First to the shadows hanging over the world…

Nuclear rivals India and Pakistan are playing with matches in perhaps the world’s largest powder keg — Kashmir.

A terrorist bomb killed 42 Indian paramilitary personnel in Kashmir earlier this month.

Yesterday, India airstruck what it claims to be a training facility of the group responsible.

At least one Indian warbird was downed… and one pilot captured.

Early today, Pakistan unleashed a retaliatory airstrike against Indian targets in Kashmir.

And so the Hatfields and McCoys are once again at each other’s throats — only these feuding clans wield nuclear muskets.

Skittish markets sold off this morning before making good some of their losses.

The Dow Jones closed 72 points lower. The S&P lost a mere point, while the Nasdaq clawed a five-point gain.

But to return to our looming March 1 deadline…

Last February’s “bipartisan” spending bill suspended the debt ceiling — then at $20.5 trillion — until March 1, 2019.

March 1, 2019, falls this Friday.

Friday’s deadline would pass harmlessly if the debt had remained at $20.5 trillion.

But it has not.

Today’s federal debt exceeds $22 trillion.

And after Friday, the United States government cannot legally borrow additional funds — unless Congress raises the debt ceiling to present levels.

Of course… the government runs under perpetual deficit.

And it cannot meet existing commitments without ongoing resort to the credit markets.

The Treasury can take to accounting gimmicks or “extraordinary measures” to keep the government in funds.

But only for a time.

The Congressional Budget Office (CBO) estimates the cupboards would be empty by September — unless the debt ceiling is raised beforehand.

If it is not, the United States government will default on its obligations… and its creditors will go scratching.

Before the U.S. Senate Finance Committee yesterday, Jerome Powell attested “it would be a very big deal,” adding:

It’s beyond even consideration. The idea that the U.S. would not honor all of its obligations and pay them when due is something that can’t even be considered.

But we would advise Mr. Powell to sleep well.

Of course Congress will raise the debt ceiling.

We will eat these words if wrong — without salt, without butter, without chaser.

Would an addict cut himself off from his dealer?

Would a hopeless drunkard willingly throw himself upon the wagon?

Would a crook lock himself up… and toss the key?

The prior two debt ceiling “crises” fell in 2011 and 2013.

Republicans sobbed their crocodile tears about Obama and the spendthrift Democrats.

The debt ceiling must not be raised without spending cuts to match, they raged.

But now one of their own occupies the White House — or at least a fellow with an “R” after his name.

And they themselves have spent like ship-bound sailors turned loose ashore.

The federal government has assumed over $2 trillion alone since Mr. Trump swore the oath.

How could they possibly take their stand now?

What about the Democrats?

Might they try to use the debt ceiling for political advantage, to dig a thumb in Trump’s eye?

Not without being laughed off the floor.

Have you seen some of their spending proposals?

And House Democrats have recently introduced legislation to abolish the debt ceiling entirely.

The new credit card would come without a limit.

And so today we suffer an acute pang of what the Germans call fremdschämen — embarrassment for those incapable of feeling embarrassment.

Each raising of the debt ceiling represents another sad congressional admission:

We cannot control ourselves. We are incapable of living within our means. We are wastrels.

But rather than lower their heads… they extend their hands.


But perhaps we should be kinder.

The entire system rests upon greater and greater infusions of debt.

It would seem somehow inappropriate to stop now. What else can they do?

As our co-founder Bill Bonner has said:

People think what they must think when they must think it.

Meantime, debt is expanding 6% per year — far greater than growth.

As it stands today, the nation’s debt-to-GDP ratio rises above a perilous 106%.

Evidence — though inconclusive — suggests the red zone begins at 90%.

And growth is trending in the wrong direction.

Our crystal ball turns up no reason why it will return to historical levels anytime soon.

But slow-motion disasters are rarely halted before they reach their ultimate conclusion.

Meantime, the can will go kicking down the road… until the day it stops.


Brian Maher
Managing editor, The Daily Reckoning

The post Another Government Debt Crisis? appeared first on Daily Reckoning.