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Marching toward a debt crisis


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Experts agree that soaring federal debt is trouble. Federal Reserve Chairman Jerome Powell said last week, “I’m very worried about it . . . It’s a long-run issue that we definitely need to face, and ultimately, will have no choice but to face.” The Congressional Budget Office (CBO) reported in June that our growing debt could trigger a global financial crisis if interest rates spike.

Powell said it is a “long-run issue,” but he is wrong. With debt spiraling upwards, a crisis could surprise us at any time because economists are lousy at forecasting. All 50 forecasters in a Wall Street Journal poll last Fall missed the recent sharp change in interest rates. CBO and most other forecasters missed the economy’s plunge into the Great Recession a decade ago.

The Great Recession was centered around rising mortgage debt, which triggered domino effects across the economy as financial institutions, households and businesses retrenched. The private sector learned its lesson from the recession and current household and business debt levels are manageable.

The problem today is federal government debt, which is growing by almost $1 trillion a year. Under its alternative scenario, CBO projects that debt held by the public will double as a share of gross domestic product (GDP) from 78 percent today to 157 percent by 2040. The agency says rising debt is “unsustainable,” so either Congress makes large reforms or there will be a crisis.

Federal debt is the highest in our peacetime history when compared to GDP, and it will soon eclipse the all-time peak in World War II. Including state debt, our government debt is 9th highest among 33 high-income nations.

Before Greece plunged into a fiscal crisis a decade ago, its debt was 121 percent of GDP. Our federal-state debt is already 110 percent and will soon hit that Greek level. The higher our debt goes, the more likely it will induce a Greek-style crisis because interest rate hikes will impact a larger pile of borrowing.

We’ve been lucky in recent years—interest rates have remained low because of Federal Reserve policies, ample global savings and reduced borrowing by foreign governments. But those factors can change. High-saving nations such as China may become more spendthrift and reduce the global savings pool and European governments may increase borrowing to pay for the rising costs of their entitlement programs.

Fiscal environments can turn dramatically. The Clinton administration ran surpluses and optimistically projected that federal debt held by the public would soon be paid off. Finance expert James Grant noted, “The nil public debt that Bill Clinton projected for 2015 turned out to be $18.2 trillion instead. War, politics-as-usual, and a pair of recessions, including the Great Recession, took him by surprise—as they did so many others.” 

So while debt projections already look scary, we’ll probably be hit by surprises that make the outlook even worse, such as recessions, wars, higher interest rates or a new president in 2021 who wants spending on a Green New Deal or Medicare for All.

We are on a budget death spiral similar to what Canada faced in the 1990s. As deficits soared, interest costs began devouring their federal budget—rising from10 percent of total spending in the mid-1970s to 30 percent by the mid-1990s. The high debt scared away investors and the economy struggled. Canada’s federal debt was downgraded by the ratings agencies, and a Wall Street Journal editorial called the country a “basket case” and “an honorary member of the Third World” for its bleak outlook.

The Canadian story has a happy ending because leaders were jolted to their senses and made gutsy decisions to slash spending. They cut defense, business subsidies, farm aid, welfare, grants to lower governments, federal jobs and much else. Federal debt plunged from 67 percent of GDP in 1996 to 34 percent by 2006. Defying Keynesian predictions, the large spending cuts revived the economy and launched the nation on a long boom.

American leaders used to know how to reduce debt. Debt spiked during every war over the past 230 years but was always paid down afterwards. After the Civil War, for example, the government ran surpluses 28 years in a row, causing debt to plunge from 31 percent of GDP down to just 7 percent.

Today we are at peace yet the debt is soaring. The profligacy is so scary because our leaders don’t seem to have the guts to make tough spending decisions like Canada did. We’re marching into a fiscal crisis and few of our leaders seem to care about debt or know how to tackle it.

Agreed.  Our "leaders",  and I use that term very loosely,  in Congress only seem to care about getting reelected first,  accumulating political power second, growing their personal wealth third.  They don't give a rat's ass about the future of this country.  They only pay it lip service.



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Republicans Are the Party of Trillion-Dollar Deficits: https://reason.com/2019/07/19/republicans-are-the-party-of-trillion-dollar-deficits/


Here's a story from this week that you likely won't hear much about, what with the 24/7 cable news screamfest over the Trump-Squad wars: The White House announced that its 2019 federal deficit projection has been revised upward to the symbolic $1-trillion threshold.

To accommodate this irresponsibility, Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi (D-Calif.) are quietly negotiating the increase or even removal of that once-controversial artifact: the debt ceiling.

Mnuchin maintains, probably with some hyperbole, that the country faces default in September unless Congress raises the $22-trillion debt limit the country already blew through in March. (Treasury has been taking various emergency measures to patch the fiscal ship of state since then.)

Pelosi counters that in exchange for Democratic support, she wants a two-year budget deal that jacks up discretionary domestic spending. If recent history is any judge, the two will likely dance around each other for a while, then agree to spend and borrow trillions more.


Notice what is not on the table, despite a GOP administration: reining in federal spending, whether next year or next decade. What a difference a little power makes.

When a Democrat held the White House, the debt ceiling was the Republicans' favorite tool for forcing conversations about spending caps and long-term entitlements. It dominated the national political headlines from 2011-2014.

Now, particularly under a president who won a competitive primary by trashing traditional conservative notions of trimming the welfare state, Republicans are treating the borrowing limit as a momentary irritant, to be waved off as politically necessary.

The flight from fiscal rectitude pre-dated the rise of Trump. As soon as Republicans re-took control of the Senate in November 2014, new Majority Leader Mitch McConnell (R-Ky.) said: "Let me make it clear: There will be no government shutdowns and no default on the national debt." So much for the previous four years of political conflict.

Back then, fiscally conservative members of the Tea Party movement still had enough self-respect to call out their free-spending colleagues. In March 2015, then-Rep. Mick Mulvaney, a founding member of the recently formed, deficit-hawkish Freedom Caucus, wrote a Wall Street Journal op-ed headlined: "The Republican Budget Is a Deficit Bust," arguing, "There is no honest way to justify not paying for spending, no matter how often my fellow Republicans try."

Less than three years later, as a power-accruing member of the Trump administration, Mulvaney declared that "We need to have new deficits." Well, mission accomplished.

The Congressional Budget Office last month once again called the country's long-term fiscal trajectory unsustainable, warning that any meaningful rise in interest rates could trigger a global financial crisis. We will soon top even World War II records for debt as a percentage of GDP; annual debt service will likely eclipse military spending during the next presidency, and Medicare is on pace for forced benefit cuts by as early as 2026. All this during the late stages of a near decade-long economic expansion.

So what are the deficit hawks at the Freedom Caucus doing nowadays? Criticizing co-founder (and now defector) Rep. Justin Amash (I-Mich.) for daring to criticize Trump.

The president is certainly onto something when he says, whenever asked about the looming debt crunch, "Yeah, but I won't be here." Sadly, though, the rest of us will be.

And here's where things get worse. As Mulvaney warned in 2015, Republicans from 2011 through 2014 "were gaining the moral high ground on spending," but with new increases "we lost it, and it will be harder to regain the next time." No one will soon believe Republicans next time they cry about President Elizabeth Warren's mammoth new spending plans.

Americans received a telegram from that lost world of conservative deficit-hawkery on Tuesday, when former South Carolina congressman and governor Mark Sanford said he was considering a challenge to Trump for the Republican presidential nomination. "I think the Republican Party has lost its way on debt, spending and financial matters," Sanford told the Post and Courier.

So will Sanford be the flicker that causes the GOP to reignite its sense of fiscal sanity? Bet your life savings against it. Not only are we living in a time when one of the most influential conservative media figures, Tucker Carlson, is singing the praises of Warren's economic ideas; there's the not-insignificant matter of Trump himself.

The Republican Party already has a primary challenger to the president who talks in every speech about debt and deficits, fiscal rectitude and long-term entitlement fixes. And Bill Weld is being outpolled by an average of more than 70 percentage points, while being outfundraised by Trump 150 to 1. There may be a place for deficit hawks in American politics, but it's not in the Republican Party.

A slowly sinking ship.


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Possible Budget Deal Will Add $2 Trillion to the National Debt: https://reason.com/2019/07/22/possible-budget-deal-will-add-2-trillion-to-the-national-debt/


It holds true that the only thing pretty much everyone in Congress and the White House can agree on is to spend more money.

The White House and Congress are closing in on a deal to hike spending and postpone a battle over the debt limit until July 2021—eight months after the next presidential election. The agreement includes a paltry $75 billion in budgetary offsets, Bloombergreports. Though a final deal has not yet been reached, the plan is for Congress to pass the new budget before July 26, when lawmakers will begin a six-week summer recess.

The proposed plan will increase current spending caps by $320 billion over the next two years, with the spending hikes equally split between domestic programs and the military. Depending on the details, the budget could add as much as $2 trillion to the national debt over the next decade, according to the Committee for a Responsible Federal Budget (CRFB), a nonpartisan groups that favors balanced budgets.


[Update: Trump announced that a deal had been struck on Monday evening.


I am pleased to announce that a deal has been struck with Senate Majority Leader Mitch McConnell, Senate Minority Leader Chuck Schumer, Speaker of the House Nancy Pelosi, and House Minority Leader Kevin McCarthy - on a two-year Budget and Debt Ceiling, with no poison pills....


While Trump says Republican and Democratic leaders in the House and Senate have agreed to the budget and debt ceiling plan, Rep. Justin Amash (I–Mich.) offered a note of dissent.]


More spending. More debt. More failure of representation. This “deal” reflects our broken process. A few “leaders” dictate terms to everyone else. They don’t care how bad the “deal” is for America, as long as they maintain power. They then bribe and punish others to get it done. https://twitter.com/realdonaldtrump/status/1153420653938262019 


In a statement, the CRFB said the budget deal "may be the worst in history," given the country's current precarious fiscal condition.

"Members of Congress should cancel their summer recess and return to the negotiating table for a better deal. If they don't, those who support this deal should hang their heads in total shame as they bolt town," says Maya MacGuineas, president of the CRFB. "This deal would amount to nothing short of fiscal sabotage."

If President Donald Trump signs the deal into law, he will have authorized a 22 percent increase in federal discretionary spending during his first term in office—having signed a March 2018 budget deal that similarly jacked up both domestic and military spending.

It's apparent at this point that there is virtually no political coalition in Washington, D.C., genuinely interested in reducing spending and bringing the national debt under control. Democrats are largely a lost cause when it comes to fiscal responsibility, while Republicans—with few exceptions—are little better, having abandoned decades of lip service to the benefits of smaller government.


But as Trump has taken over the Republican Party, the influence of those other groups has waned. And with Democrats now controlling the House, any Republican resistance to higher spending will have a blunted effect anyway.

Meanwhile, the national debt will continue to grow even without lawmakers adding to it this month. The CBO presently projects that the federal government will add another $11.6 trillion to the deficit over the next decade. By 2049, the national debt will be more than one and a half times the size of the entire U.S. economy, breaking a record set during World War II. If a recession hits, those numbers could be worse.

And yet the only thing officials in Washington can agree to do is spend more money. May our children forgive us.

Pitiful.  And Mr. Amash is right. If bears repeating:

"More spending. More debt. More failure of representation. This “deal” reflects our broken process. A few “leaders” dictate terms to everyone else. They don’t care how bad the “deal” is for America, as long as they maintain power. They then bribe and punish others to get it done."

These are the leaders the uni-party system has given us. Those who continue to vote for this trash should be ashamed.



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Trump is reportedly not worried about a massive US debt crisis as he'll be out of office by then: https://www.businessinsider.com/trump-debt-crisis-fine-wont-be-here-report-2018-12]\



President Donald Trump is said to not be worried about setting the US up for a massive debt crisis because he doesn't think it'll erupt until after he leaves office.

Sources close to the presidency told The Daily Beast that Trump had repeatedly shrugged off any concerns about the rising national debt because it was projected to come to a head only after he would finish a second term.

During a 2017 briefing with senior officials, Trump responded to a presentation of charts and graphics by saying, "Yeah, but I won't be here," according to a source The Daily Beast said witnessed the comment.



So in that respect Mr. Trump really isn't all that different from the other uni-party politicians in Washington.


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7 minutes ago, TrojanDad said:

Well if the Daily Beast printed it, it HAS to be true.......

So you truly do not believe that is the basic mindset of Mr. Trump, along with nearly every elected politician in Washington, D.C.?  Kicking the can down the road is standard operating procedure.


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9 hours ago, Muda69 said:

And you and other socialists blindly voting for the Democratic side of the uni-party is better exactly how?



7 hours ago, TrojanDad said:

Yea Dante, because the budget didn’t grow under Obama and the current house isn’t under under a Dem majority right?  

Do better DE.....


7 hours ago, Impartial_Observer said:

Looks like there's plenty of blame to go around. Funny stuff though DE, keep it coming!


US Debt by president.png


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5 hours ago, DanteEstonia said:

You stated R’s raised the debt and TD and I will vote for them anyway, I-retorted with a graphic that clearly shows both R’s and D’s have raised the debt in the last nearly 30 years and whataboutism is your answer? You continue to vote blindly for D’s even though the graph shows they raise the debt as well. Dip, dock, dodge all you want, facts are facts. 

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18 minutes ago, Impartial_Observer said:

You stated R’s raised the debt and TD and I will vote for them anyway, I-retorted with a graphic that clearly shows both R’s and D’s have raised the debt in the last nearly 30 years and whataboutism is your answer? You continue to vote blindly for D’s even though the graph shows they raise the debt as well. Dip, dock, dodge all you want, facts are facts. 

The “Ds” don’t claim to be the party of fiscal responsibility; the GOP does.

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Just now, TrojanDad said:

Yet you only have issue with the R's??  Don't you think there is enough hypocrisy to go around for both parties?

My issue with the GOP stems from the fact that they claim to be the party of the Church, yet have no problem embracing people who have no morals.

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2 minutes ago, TrojanDad said:

What does that have to do with the budget?  I thought that is what we were discussing?

In regards to your comments, I can think of plenty of religious hypocrisy on both sides.  Then again, everyone is a sinner......sadly not everyone admits this and seeks forgiveness.

Do you think the Clinton's have outstanding morals??

I hope he's got a forklift to keep moving that goal post, I'm sure they're heavy.

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19 minutes ago, Impartial_Observer said:

I hope he's got a forklift to keep moving that goal post, I'm sure they're heavy.

Something he probably learned under the tutelage of Rory Reid.


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20 hours ago, DanteEstonia said:

No; but they don’t campaign on it.

So because the Clinton's did not "campaign on their morals" you and others were willing to give them a pass, and your vote?


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