The debt monster in the United States

How long have we been hearing it? “We can’t continue to borrow money at this pace. The sky is falling!” This has been the mantra for such a long time (at least 40 of my three score years). Does it really mean anything? Well of course it does, but the real question is, when will we really start feeling the effects of this debt?

Let’s put the blame squarely where it belongs. Congress has so drastically failed in their efforts to control spending. They don’t really try anymore. The U.S. Constitution puts Congress directly in charge of the government’s “fiscal policy” (budgets and spending). All spending bills originate in the House of Representatives. The Senate and House members are much more concerned about staying in power than they are about being fiscally responsible to their constituents.

What does Congress do that is so harmful? They have stopped following the rigorous budgeting process that our Constitution mandates. Does anyone care? Apparently not. While trying to pass a spending bill, they fight this public fight in the news media with both sides posturing and accusing the other side of pushing the other’s grandma down the side of a mountain in a wheelchair (you may recall, a few years back, this was actually a paid television commercial for a political candidate). They ramp-up the drama, each side trying their best to get what they want included in the bill. Sometimes, for added effect, Congress allows the current bill to expire, and they’ll pass a two-week or a two-month gap-spending bill while the lobbyists (who actually write the spending bill) continue to pack it full of goodies for the special interest groups and the powerbrokers. They continue playing this game in the media: “If we don’t pass this “Omnibus” spending bill, you won’t be able to visit your favorite National Park this summer.” They make a huge deal about it with tons of finger pointing at each other, then they hold this public and dramatic vote, with the bill barely squeaking by. Then we, their lucky constituents, get to see what’s in the bill.

Since Congress always overspends (so they can “keep us happy”), none of these spending bills are ever fully funded, so they rely on our central bank, the Federal Reserve bank of the United States, to issue new debt to pay for the shortfall, what we call the annual budget deficit. Through the years, we’ve accumulated enough debt via these deficits to run up a current debt of over $27,000,000,000,000.00 ($27 trillion). Interest must be paid on this debt, and this interest payment has become a large item in the annual budget. What has the Federal Reserve done to keep these interest payments from growing out of control? They have artificially kept these rates very low for a number of years now. In other words, Congress and the Federal Reserve have tried every trick in the book to counter these potentially devastating effects of our massive debt. Economists call this Modern Monetary Policy (MMT) and MMT’s premise is that you can finagle your way out of paying the piper. How long can they do it?

Last week, a sudden rise in the 10-year treasury, a key interest rate indicator, sparked a market sell-off. The Federal Reserve is “juicing” the economy (to keep it from crashing during the pandemic and other crises) by injecting trillions of dollars into the markets via buying bonds and mortgaged backed securities on the open market. How do they pay for this? They create the money out of thin air. I wish I were joking. They will continue to “print until we are skint.”

Are we there yet? I wish I had a crystal ball.

This is a house of cards, and when it falls, as Sheriff Andy Taylor (“Andy Griffith” show) would have said, “It’s gonna to be mighty ugly.”

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