Marching toward a debt crisis

[Muda69]

21 minutes ago, gonzoron said:

My Social Security payments will be funded with tax payments directly from our esteemed Mudrator.

Yes, legalized theft along with wealth distribution.

 

 

[gonzoron]

5 minutes ago, Muda69 said:

Yes, legalized theft along with wealth distribution.

 

 

Only after the first $162,000

Edited June 11, 2020 by gonzoron

[Muda69]

27 minutes ago, gonzoron said:

Only after the first $162,000

https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1812&context=lcp

https://www.cato.org/publications/commentary/is-there-right-social-security

Quote

You worked hard your whole life and paid thousands of dollars in Social Security taxes. Now it’s time to retire. You’re legally entitled to Social Security benefits, right? Wrong. There is no legal right to Social Security, and that is one of the considerations that may decide the coming debate over Social Security reform.

Many people believe that Social Security is an “earned right.” That is, they think that because they have paid Social Security taxes, they are entitled to receive Social Security benefits. The government encourages that belief by referring to Social Security taxes as “contributions,” as in the Federal Insurance Contribution Act. However, in the 1960 case of Fleming v. Nestor, the U.S. Supreme Court ruled that workers have no legally binding contractual rights to their Social Security benefits, and that those benefits can be cut or even eliminated at any time.

Ephram Nestor was a Bulgarian immigrant who came to the United States in 1918 and paid Social Security taxes from 1936, the year the system began operating, until he retired in 1955. A year after he retired, Nestor was deported for having been a member of the Communist Party in the 1930s. In 1954 Congress had passed a law saying that any person deported from the United States should lose his Social Security benefits. Accordingly, Nestor’s $55.60 per month Social Security checks were stopped. Nestor sued, claiming that because he had paid Social Security taxes, he had a right to Social Security benefits.

The Supreme Court disagreed, saying “To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever changing conditions which it demands.” The Court went on to say, “It is apparent that the non‐contractual interest of an employee covered by the [Social Security] Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments.”

---

The Court’s decision was not surprising. In an earlier case, Helvering v. Davis (1937), the Court had ruled that Social Security was not a contributory insurance program, saying, “The proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.”

In other words, Social Security is not an insurance program at all. It is simply a payroll tax on one side and a welfare program on the other. Your Social Security benefits are always subject to the whim of 535 politicians in Washington. Congress has cut Social Security benefits in the past and is likely to do so in the future. In fact, given Social Security’s financial crisis, benefit cuts are almost inevitable. Several proposals to cut benefits, from increasing the retirement age to means testing, are already being debated.

In contrast, under a privatized Social Security system, workers would have full property rights in their retirement accounts. They would own the money in them, the same way people own their IRAs or 401(k) plans. Congress would have no right to touch that money.

Opponents of privatizing Social Security often warn that it would be risky to rely on private markets to provide retirement benefits. But, with the Social Security system more than $10 trillion in debt, being forced to rely on the unsupported promises of politicians is far more risky. By giving individuals ownership of their own retirement money, privatization would guarantee the security of retirement.

Indeed, only privatization would give Americans a true right to their Social Security.

https://tenthamendmentcenter.com/2010/08/13/is-social-security-constitutional/

Quote

...

The general welfare clause, being but a part of a general provision of the Constitution, applies solely to the States “in their united or collective capacity.” If the Constitution had established a social compact or union between the American people, and they were the object of the general powers delegated to the federal government, then it would have been an absurdity to reference the States, in their united capacity, as the object of the general welfare phrase. In addition, if the Constitution had been established for the well being of the American people, then that same people would have been the “whole group” referenced in the general welfare phrase.

Based on the above definitions, Social Security should have been struck down because Congress used a provision of the Constitution that applied to the States, in their united capacity, and unconstitutionally applied it to the people. When Congress inserted the words “[a]n Act to Provide for the General Welfare” at the beginning of the Social Security Act, that body took a clause that granted Congress the power “[t]o lay and collect Taxes… to provide for the… group well being of all the United States” and twisted it into a power that granted Congress the power to tax and appropriate money for the general welfare generally. This was a gross usurpation of power.

The American people should never lose sight of the fact that the individual States are not united generally. They are united specially. In other words, the States are only united within the scope of the limited powers delegated to the federal government. When the States are operating within these powers through their agent, the federal government, they are identified as the United States and the general welfare provision applies to them collectively. The opposite applies when the States are not operating within the delegated powers. Outside of the delegated powers, the States are known as the several States and are independent sovereign entities. Thus, Congress cannot have broad power to declare what constitutes the general welfare because the States are not united generally.

There are other facts that disprove a broad interpretation of the general welfare provision. In order for Congress to have extensive and indefinite power to tax and appropriate money for the general welfare, the federal government would first have to have been granted total power over both domestic and foreign affairs. In Federalist Essay No. 45, James Madison, who is recognized as the father of the Constitution, provided a blueprint of the Constitution when he distinguished the external powers granted to the federal government from the domestic powers reserved to the States:

“The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part; be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people; and the internal order, improvement, and prosperity of the State.”

Since the constitutional powers of the federal government are few and do not extend to internal or domestic affairs, the federal government cannot have unspecified and indefinite power to tax and appropriate money for the general welfare. That government has no general legislative authority to do anything concerning the life, liberty or property of the people of the several States. Thus, domestic social aid programs like Social Security are nothing but a usurpation of power because they violate these constitutional principles.

In Federalist Essay No. 41, Madison, in discussing the limited powers delegated to the federal government, stated that they could be reduced to 6 categories of powers:

“That we may form a correct judgment on this subject, it will be proper to review the several powers conferred on the government of the Union; and that this may be more conveniently done they may be reduced into the different classes as they relate to the following different objects: 1. Security against foreign danger; 2. Regulation of intercourse with foreign nations; 3. Maintenance of harmony and proper intercourse among the States; 4. Certain miscellaneous objects of general utility; 5. Restraint of the States from certain injurious acts; 6. Provisions for giving due efficacy to all these powers.”

Since Social Security cannot be placed into any of these 6 categories of power, to sustain this domestic social aid program as a valid exercise of power under the general welfare provision was nothing short of an unconstitutional power grab by the federal government.

Even Supreme Court Justice Story, whose 1833 commentaries on the Constitution helped form the basis for the 1937 decision upholding Social Security referenced above, recognized that the federal government lacked the constitutional authority to establish these programs. In his analysis of the general welfare provision, Justice Story stated that the federal government had not been granted the authority to meddle with the “systems of education, the poor laws, or the road laws, of the states.”

If the federal government did not have the constitutional authority to institute domestic social aid programs like Social Security in 1833, as acknowledged by Justice Story, and did not have the authority in 1930, as acknowledged by President Roosevelt, then how could Congress have acquired this power in 1935? Since the Constitution had not been amended, there can only be one conclusion. The federal government, acting through its political appointees in the Supreme Court, simply opened the door for a new interpretation of the general welfare provision that deleted words, changed the meaning of the words, and was absent of the basic limitations incorporated into the Constitution by the Founders. In short, the Court re-wrote the Constitution from the bench and handed Congress almost unlimited power to tax and spend so long as it cites the general welfare provision as the constitutional authority for the legislation.

 

[gonzoron]

3 minutes ago, Muda69 said:

Your Social Security benefits are always subject to the whim of 535 politicians in Washington.

That's why I plan to get mine asap

[Muda69]

36 minutes ago, gonzoron said:

That's why I plan to get mine asap

And far more than you ever paid in.

 

 

 

[gonzoron]

1 hour ago, Muda69 said:

And far more than you ever paid in.

 

 

 

That will take a few years. Quite a few.

[DanteEstonia]

4 hours ago, Muda69 said:

Hmm. In the future I'll try and see that I purchase only non-Nevada sourced gold.

 

Which still increases the demand for gold...

[Muda69]

The Next Pandemic Will Be Caused by the National Debt. It Will Crater the Economy.

https://reason.com/video/the-next-pandemic-will-be-caused-by-the-national-debt-it-will-crater-the-economy/

Quote

...

It's important to underscore that all the death and economic wreckage COVID-19 has caused didn't just "come out of nowhere" because there's another totally predictable crisis that promises to be even more damaging to our way of life: The national debt—the amount of money the federal government owes—is already choking down economic growth, but in the future, it could lead to "sudden inflation," and "a loss of confidence in the federal government's ability or commitment to repay its debts in full." "Such a crisis could spread globally" causing some "financial institutions to fail." That's all according to the nonpartisan Congressional Budget Office (CBO), which has been warning Americans about the long-term consequence of the ballooning debt for years.

Like the coronavirus, the debt problem has the potential to seemingly appear out of the blue and turn our world upside down in a matter of weeks. There's plenty we can and should do to avoid or minimize the potential shock to our system, but Congress and presidents from both major parties have accepted Dick Cheney's false maxim that "deficits don't matter." Instead, they just keep spending more than we take in during good times and bad, even though being so deeply in hock will make us less able to deal with a future crisis.

The amount of money the government owed to the public was 79 percent of gross domestic product at the end of 2019, up from 31 percent in 2001. The COVID-19 lockdowns and subsequent emergency spending will push the curve above 100 percent of GDP by the end of 2020, and it's expected to keep rising.

Emergency spending and plunging tax revenues are making a bad situation worse. CBO forecasts that the budget deficit this year will be 17.9 percent of GDP, meaning that the government is running much larger deficits, racking up significantly more debt, than it did even at the height of the financial crisis of 2007-2008.

Economists such as Nobel Prize-winner Paul Krugman and proponents of modern monetary theory (MMT) look at the absence of inflation and higher interest rates so far as justification for ever-more spending and borrowing. While it's true that the cost of paying interest on the debt is still dwarfed by other expenditures, that's because historically low interest rates have made government borrowing cheap.

But there's no reason to believe that interest rates won't rise over time. According to conservative estimates from the CBO, as the total budget grows as a percentage of GDP, the cost of paying interest on the debt will increase faster until, by 2050, it accounts for about 24 cents of every dollar spent. And these estimates don't take into account emergency spending for COVID-19, which will make servicing the debt even more costly over time. Like a monthly credit card payment that eats into a household budget, federal debt means less money to buy other things.

       

And when governments run large, persistent deficits, it also has a devastating impact on economic growth over time. Our current debt levels could reduce GDP by about one-quarter over 23 years, according to research by Harvard economists Carmen Reinhart and Kenneth Rogoff. It's a case of what French economist Frédéric Bastiat referred to as "the unseen" because we'll never get to experience how much wealthier we otherwise would have been had the federal government practiced fiscal prudence. Anemic growth will impact the poorest Americans most of all, causing their material progress to slow considerably. It means less leisure time, smaller homes, older cars, and less health care.

In the short-term, there's no question that the government can and will be able to borrow massively, and interest rates are likely to stay low for the time being as the world shifts into recession. But there's also the specter of investors here and abroad refusing to buy U.S.-issued debt as our economy flattens, China flexes its economic and political might, and alternative instruments such as bitcoin and gold offer safe refuge. Like a global pandemic, a debt crisis seems impossibly off in the distance until it's the only thing you can see. Even the most hubristic economist or president would have to admit that there will come a time when the U.S. dollar is no longer the world's reserve currency. That change won't necessarily be as dramatic as when German paper marks became worthless after World War I, but it will massively reduce purchasing power even as it increases the cost of everything.

Spending proponents sometimes cite World War II when talking about battling COVID-19; the analogy is apt for reasons they may not intend. Between 1940 and 1945, federal spending increased tenfold from $10 billion to over $100 billion to pay for the war effort. But when victory was won, the government immediately cut military spending. Once peacetime growth resumed, the debt-to-GDP ratio fell quickly. Then, starting in the 1970s, with the exception of a five-year dip during the economic boom of the 1990s, the federal government has been growing the size of the debt in relation to GDP.

 

Instead of a foreign enemy, our out-of-control spending has been driven by the persistent rise in the cost of entitlements like Medicare and Social Security. Even as total tax revenues increase, we keep spending more and more, adding to a national debt that costs more to service even as it reduces economic growth.

Despite seemingly just showing up in America without notice, the coronavirus pandemic and all that has happened over the past two months didn't exactly "just come out of nowhere." When the debt crisis materializes and our options are severely limited because of decades of profligate spending, politicians sitting in the Oval Office and Congress will claim that it all just came out of nowhere, like that crazy virus back in 2020.

But nothing could be further from the truth: Budget wonks are already sounding the alarm. We need to heed these warnings now or suffer an economic lockdown later from which there may be no escape.

 

Yep, the devastation that will be caused by the debt crisis will make the coronavirus pandemic look like a drop in the bucket.

At yet all the MSM harps about is "Orange Man Bad" and "Wear Masks or Die!".

The uni-party is destroying this country, and sacrificing the future of our children and grandchildren for votes and power.  Sickening.

 

[Muda69]

'They Simply Don't Care About the Debt'

https://reason.com/2020/07/22/rand-paul-on-republican-plans-for-another-coronavirus-stimulus-bill-they-simply-dont-care-about-the-debt/

Quote

Amid a sweltering heatwave in the nation's capital, temperatures were also soaring on Tuesday afternoon inside a meeting where Republican senators attempted to settle what should be included in the next trillion-dollar-plus coronavirus stimulus package.

Sen. Rand Paul (R–Ky.) reportedly emerged from that meeting with some heated words for his colleagues. He told reporters gathered outside the luncheon meeting that he was "alarmed" by the idea of spending "another $1 trillion we don't have" and objected to the idea of sending another round of stimulus checks to Americans who haven't lost their jobs. "They are ruining the country," he said of his colleagues, according to CNN's Manu Raju.

And Paul was still hot under the collar an hour later, as he tweeted out his objections to spending more money on the Department of Education and slammed Republicans for their budgetary hypocrisy.

The majority of Republicans are now no different than socialist Democrats when it comes to debt. They simply don't care about debt and are preparing to add at least another trillion dollars in debt this month, combined with the trillions from earlier this summer.

— Senator Rand Paul (@RandPaul) July 21, 2020

 

Paul has a point. The budget deficit—the gap between the federal government's spending and its tax revenues—might be the only thing in D.C. that's higher than the thermometers right now.

Last week, the Congressional Budget Office (CBO) reported that the deficit for the month of June was an eye-watering $864 billion. As Reason's Peter Suderman noted at the time, that's more than the entire annual budget deficit for 2017 ($665 billion) or 2018 ($779 billion). In one single month, Congress put more on the national credit card than it did in any full year during the George W. Bush administration. It is more than 100 times larger than the federal budget deficit for the month of June 2019, which rang in at a paltry $8 billion.

Of course, June 2020 was nothing like June 2019 in many ways. Hopefully, this year's extraordinary circumstances will be remembered as a huge historical outlier.

Still, the expense of the federal government's response to the COVID-19 pandemic is going to be with us for a while. Congress has already committed about $3.6 trillion in emergency funds and stimulus to fighting the coronavirus (and trying to limit the economic damage lockdowns have caused). Keep in mind that the federal government was already on track to add roughly $1 trillion to the national debt this year before the pandemic hit (that's why it's important to balance the books while things are going well).

Now, Congress is preparing another round of coronavirus spending. The House has already passed a $3 trillion spending package, but Senate Republicans have balked at those levels. There is significant disagreement between the two halves of Congress about what should be included in the next stimulus package. The White House is reportedly pushing for a payroll tax cut that some top Republicans, like Senate Finance Committee Chair Chuck Grassley (R–Iowa), aren't thrilled about.

The smaller package being crafted by Senate Republicans would reportedly include another round of $1,200 checks for many Americans, though potentially with more limitations on who will receive them. It may also include another $150 billion for the Paycheck Protection Program (PPP), which is providing loans to businesses in order to keep some workers on payrolls and out of the unemployment line. And it could include legal provisions to protect businesses from lawsuits if clients or patrons catch COVID-19, as well as pay for more coronavirus testing—Trump has voiced support for the former, but the White House has reportedly objected to the latter detail. 

The one thing that seems certain is that the bill will not pass as swiftly as earlier coronavirus responses. Senate Majority Leader Mitch McConnell (R–Ky.) reportedly laughed out loud on Tuesday when asked if the bill could pass before the end of the week (the timeline that the White House is seeking).

The Trump administration also wants, according to The Washington Post, to boost federal funding for schools, mostly funded at the state and local levels, as a way to encourage them to open in the fall. But some Republican lawmakers, including Sen. Mitt Romney (R–Utah), have thrown cold water on that idea.

It was that provision that seemed to be at the center of Paul's objections as he exited the Senate GOP meeting on Tuesday. "They're going to spend $105b more on education, more than we spend every year on the Dept of Education," he tweeted. "Anyone remember when Reagan conservatives were for eliminating the Federal Dept. of Education?"

You might also recall a time when Republicans wanted to shrink the deficit. They'd largely abandoned that stance long before the coronavirus arrived—during the first three years of Trump's tenure, the national debt increased by more than $4.7 trillion.

Having wasted the opportunity to cool off the spending binge and put the country in a better position to deal with a crisis, Congress now appears ready to do the only thing it knows how: spend even more.

Yep, the uni-party,  besides the objections of principled members like Mr. Paul,  just keep on spending money we don't have.  And it will ruin this country for our children and grandchildren.

 

[Muda69]

Who Will Fund $24 Trillion in New Government Debt?

https://www.nationalreview.com/2020/07/federal-coronavirus-relief-spending-worsens-debt-crisis/

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After five years in which federal budget deficits gradually climbed toward $1 trillion, the coronavirus pandemic forced Washington to borrow $1 trillion per month between April and June. And this is just the beginning. The unlikelihood of a quick economic recovery and the additional relief legislation sure to come out of Congress should together push the deficit to roughly $4 trillion in 2020 and ensure that it averages $2 trillion annually over the rest of the decade. 

 

As a result, the national debt held by the public — $17 trillion earlier this year — is projected to reach a staggering $41 trillion by 2030, even before accounting for any additional pandemic-relief measures or the expensive proposals that Democrats are salivating to enact if they sweep the White House and Congress this November.

Who is going to lend the federal government all this money? Politicians promising trillions in new spending seem unconcerned with the question. Financial markets, which are trading ten-year Treasuries at interest rates of 0.7 percent and 30-year Treasuries at interest rates of 1.3 percent, don’t seem worried, either. Many analysts see a world awash in excess savings and a Federal Reserve dedicated to pouring liquidity into the market. Yet borrowing $24 trillion (or more) over the decade would create a nearly unprecedented burden: The debt held by the public would rise from 79 percent to 128 percent of GDP, in the largest debt surge since World War II. But when World War II ended in 1945, the debt burden quickly declined; our present national debt is set to continue rising steeply for decades, because Social Security and Medicare face a 30-year cash shortfall of more than $100 trillion.

Washington has easily financed this year’s exorbitant borrowing. Since March 11, the national debt has jumped by $3.1 trillion. Treasury data through May suggest that foreign borrowing has financed virtually none of this new debt. Instead, the Federal Reserve has increased its Treasury holdings by $1.7 trillion (from $2.5 trillion to $4.2 trillion), and the remaining $1.4 trillion has come from domestic savings such as banks, mutual funds, and state and local governments.

But this model may not be sustainable. Economists have long argued that rising debt is affordable because the large global economy will continue to eagerly lend America — creator of the world’s reserve currency — dollars at low interest rates. Yet international borrowing has not kept up with America’s rising debt. While foreigners held nearly half of America’s $10.5 trillion debt at the end of 2011, they have funded less than one-fifth of the extra $9 trillion in borrowing America has undertaken since. Over these past nine years, while America’s debt soared from $10.5 trillion to $20 trillion, the total American debt held by Japan and China barely increased, from $2.2 trillion to $2.3 trillion. The American debt held by the rest of the world grew from $2.8 trillion to $4.5 trillion in the same time frame, with the U.K. and Ireland driving one-quarter of the increase.

Moving forward, China — whose decisions to buy and sell Treasuries are often driven by whether it wishes to appreciate or depreciate its own currency — is not expected to embark on a Treasury-buying spree large enough to cover much of America’s exorbitant new borrowing; White House talk of defaulting on America’s Chinese debt as payback for China’s coronavirus-related behavior will only limit Beijing’s appetite for Treasuries. Japanese investors and pension funds should retain some enthusiasm for Treasuries as long as U.S. interest rates exceed Japan’s own zero (or negative) rates. But America’s interest-rate advantage in that case has fallen by 80 percent since 2018, and even a Japanese borrowing surge would cover only a small portion of Washington’s heavy borrowing needs. It is highly unlikely that other countries with much smaller economies and debt holdings can finance much of the $24 trillion in new borrowing, especially when many of their own national debts are rising.

 

Consequently, American lenders will have to bear the brunt of all this new federal spending. During the pandemic, the Federal Reserve has added $1.7 trillion in new Treasury holdings out of $3.1 trillion in new federal borrowing. The Federal Reserve is not permitted to buy securities directly from the Treasury Department, so it has bought existing T-bills from secondary markets at the same time that the Treasury has issued new debt.

Thus, the Federal Reserve has indirectly monetized more than half of the new pandemic-related debt. And despite what Modern Monetary Theory enthusiasts may tell you, monetization is not a viable long-term strategy. The Federal Reserve has already begun slowing its purchase of Treasuries since Mid-May and may well seek to pare back its Treasury holdings after the economy recovers, the budget deficit stabilizes, and financial markets need less emergency liquidity.

The final $1.4 trillion in borrowing since March has come largely from domestic savings, as the personal-savings rate surged from 8 percent to 32 percent, and corporate investment opportunities dried up. These savings have to land somewhere, and Treasuries have recently proven safer than the volatile stock market.

The $24 trillion question is who will feed Washington’s insatiable borrowing appetite moving forward. The days of borrowing $1 trillion per month are hopefully over, yet the remaining $21 trillion in projected borrowing over the next decade (plus any new spending approved by Congress) would still represent a doubling of the national debt.

China, Japan, and other countries are highly unlikely to finance a large portion of this debt. As a result, the Federal Reserve will face increased pressure to continue buying government debt in the future. The Fed previously increased its Treasury holdings by $2 trillion between 2008 and 2014 without inflationary consequences, so the most recent $1.7 trillion addition may be sustainable. But that doesn’t mean the Fed should — or desires to — take on a large portion of the remaining $21 trillion borrowing binge.

That leaves domestic savings to fund much of the new debt, which is a problem, because at some point the economy will recover, personal-savings rates will descend to their pre-pandemic level, corporate-investment opportunities will reappear, and the stock market will start to attract more savings. When that happens, even a return of Treasury bonds to their pre-pandemic 2 percent rate might not be enough to attract $2 trillion in additional borrowing each year. If it isn’t, interest rates will rise. And once Washington is $41 trillion in debt, each one-point increase in the average interest rate paid by the federal government will cost taxpayers an extra $410 billion per year in interest payments on the national debt.

 

Furthermore, an overreliance on domestic savings for most of Washington’s exorbitant new borrowing is likely to eventually begin crowding out business investment and blunting economic growth. This would represent a reversal of the past few years, in which large savings and cheap borrowing often exceeded the amount of sound business-investment opportunities. At some point, tapping domestic-savings markets for an ever-soaring national debt may begin to squeeze investment.

Over the past 20 years, the national debt gradually rose by $14 trillion (from 32 percent to 79 percent of the economy) without major economic consequences. But the U.S. is now embarking on a debt binge the likes of which it hasn’t risked since the height of World War II. If foreign borrowing remains relatively flat, there may be intense pressure for the Federal Reserve to essentially monetize more of the debt in order to keep rates from rising and protect business investment. America’s borrowing capacity is large, but we may discover that it is not unlimited.

Yep, we are ruining the future of this country for our children and grandchildren.

 

[Muda69]

2020 Will Be a Record-Breaking Year for Debt. How Long Can This Last?

https://mises.org/wire/2020-will-be-record-breaking-year-debt-how-long-can-last

Quote

The deficit narrowed during July after months of record shortfalls in federal tax revenues. During April, May, and June of this year deficits surges to unprecedented highs as economic activity dried up, workers were furloughed and laid off, and tax payments were deferred.

Nevertheless, according to the Treasury Department’s latest report on tax receipts and federal outlays, the gap between tax receipts and federal spending narrowed sizably during July. Although outlays increased to $626 billion during July (a 68 percent increase over July 2019), tax receipts surged to over $563 billion.

During recent months, tax receipts have been anemic at best, with totals ranging from $173 billion to $249 billion since March 2020. July’s surge in revenue, however, does not indicate an improvement in the economy. Normally, tax receipts peak in April, but due to the covid-19 panic this year, tax deadlines were deferred, and those deferred receipts began to show up in Treasury data in July.

Expect More Huge Growth in Deficits

July’s receipt totals reflect previous economic activity from before the mandated lockdowns and declines in economic activity due to “social distancing.” In other words, it is likely that receipts will worsen significantly as we approach the end of the fiscal year, which ends on September 30.

If so, we can expect the federal deficit to grow even more, bringing it to a new all-time high for the 2020 fiscal year.

Indeed, for this fiscal year through July, the federal deficit increased by more than 200 percent from 2019, rising to $2.8 trillion. For the same period of 2019 (October through July), the deficit was $866 billion. The last time the deficit even came close was when it topped $1.2 trillion for the same period of the 2009 fiscal year.

Trillions in New Borrowing

Poised to add more than $3 trillion to the national debt in 2020, the US is borrowing more than ever, and committing to ever larger dollar amounts that must be paid on the approximately $25 trillion debt.

So what kinds of debt payments are we looking at? Even before the covid-19 crisis hit, the Congressional Budget Office estimated that the US would pay more than $400 billion in 2020 (compared to approximately $650 billion for the defense budget). Except now the US is paying around $2 trillion more than was expected under last year’s estimates.

Moreover, the US is unlikely to be churning out any big surpluses any time soon. It’s a safe bet that deficits will continue to mount, and with them will come more interest payments on the debt.

"Deficits Don't Matter"

Most Americans don’t seem particularly concerned about this.

A recent survey from the Pew Research Center suggests fewer than half of Americans rate the federal deficit as “a very big problem.” And why should they? Experience suggests that deficits—to use the words of former vice president Dick Cheney—“don’t matter.” After all, in recent years the Trump administration has racked up ever larger deficits, exceeding even $1 trillion in 2019, and it’s unlikely that many Americans see any connection between deficits and economic malaise.

The problem of massive amounts of deficit spending is more subtle than that.

In some cases problems only become obvious when interest payments on the debt grow considerably and begin to eat up the rest of the budget.

For now, it may be that the Treasury is “only” paying around $400 billion. But this is largely because the US pays such a low interest rate on the debt. Indeed, the interest rates on US debt are at historic lows, with the thirty-year bond at under 1.5 percent and shorter-term bonds at even lower rates.

There are unusually low rates, and even the Congressional Budget Office expects interest rates to increase considerably in coming years.

And what if interest rates increase to even 3 percent—which would still be a very low rate historically? If that were to happen, total debt service paid on the debt could surge to a trillion dollars or more. That’s an amount similar to the total paid out each year in Social Security right now. If that were to happen, Congress would have to find that money somewhere. To pay the interest, they’d have to cut funds from Social Security, defense, infrastructure spending, Medicare, or somewhere else.

As government checks got smaller, the public would finally start to understand the problem with deficits.

Turning Debt into Price Inflation

Moreover, the more the US has to borrow money, the more it floods the marketplace with US bonds, which would tend to push up the interest rate paid. After all, if a government’s going to be cranking out bonds seemingly without end, it will have to pay out more interest in order to convince investors to keep buying the bonds.

But there’s one big reason that even now, as the US adds another $3 trillion to the deficit overnight, interest rates aren’t going up.

That reason is the US’s central bank, the Federal Reserve. Rather than face the music of paying more interest at higher rates—and cutting federal spending to do so—the central bank is helping keep interest rates low.

The Fed does this by buying up new US debt in the open market. This helps keep demand for US debt instruments high, keeping interest rates low.

In part, this is why the Fed’s balance sheet now tops $7 trillion. The Fed has been buying up the US governments debts, among other assets, to so as keep interest rates low.

Of course, this doesn’t mean the problem is solved. The central bank generally makes these purchases with newly created money. That means the money supply grows, with resulting price inflation in both assets and consumer goods, all else being equal.

In other words, the downside of enormous and growing deficits is in a place many people wouldn’t think to look: in surging home prices, in rising food prices, and in a generally rising cost of living.

Making Income Inequality Worse

None of this is a particularly big problem for people who are already well-off or wealthy. In fact, for those who work in the financial sector it’s a windfall. But for people outside the financial sector, such as young couples looking to become first-time home buyers or single parents trying to make ends meet, things are less wonderful; this relentless inflation can be a big problem indeed.

Politically, however, this scheme can be kept up for as long as the US dollar continues to be the world’s reserve currency. When the dollar no longer has this advantage, the US will finally face a sovereign debt crisis.

But some observers apparently think this can still be avoided. A recent quotation in The Hill shows the sorts of naïveté that still pervade among observers of American politics:

"We have borrowed $2.8 trillion this year so far — triple what we borrowed last year," said Maya MacGuineas, the president of the Committee for a Responsible Federal Budget.

"…it will need to be followed by measures to bring the debt back down once the economy has recovered," she added.

Until the US really faces a global move to dump the dollar as the reserve currency, or until interest rates in the US really start to climb, there will be no “measures to bring the debt back down.” We’re in a terminal debt spiral. The only question is how long it will last until the patient succumbs.

I truly fear for the future of my children and grandchildren.  Does anybody else here hold that same fear for their children and grandchildren?

 

[Muda69]

America's National Debt Will Be Larger Than the Economy Next Year

 

https://reason.com/2020/09/02/americas-national-debt-will-be-larger-than-the-economy-next-year/

Quote

When the federal government's fiscal year ends on the last day of September, America's national debt will nearly match the size of the nation's economy for the first time since the end of World War II, according to projections from the Congressional Budget Office (CBO).

The national debt will equal 98 percent of America's gross domestic product, a rough measurement of the size of the country's economic output, by the end of the current fiscal year, the CBO says in an updated budgetary outlook released Wednesday. The debt will continue to grow and will exceed the size of the economy by this time next year before eventually reaching 108 percent of the size of the economy in 2030.

The national debt has been rising for two decades, but it surged this year as emergency coronavirus response spending caused the federal budget deficit—the gap between what the government spends and how much it collects in tax revenue in a single year—to explode. The CBO now expects the deficit for this year to hit $3.3 trillion. That's more than three times larger than the deficit for the fiscal year that ended in September 2019. The budget deficit for the month of June alone exceeded every annual budget deficit during the George W. Bush administration.

 

But while the coronavirus might have made the federal budget situation worse, it really only accelerated trends that were already well established. As Reason's Matt Welch noted last week, spending under President Donald Trump surged by $937 billion in less than four years—and that was before Congress authorized trillions in emergency coronavirus spending. The Trump administration's tax cuts, while well-intentioned, also added to the budget deficit because they were not offset by spending cuts. It's true that Trump inherited a budgetary mess, but he (and the Republicans who controlled Congress during most of his tenure) have undoubtedly made the mess worse.

And, again, that was all before the current crisis hit. Here's a graphic from the Committee for a Responsible Federal Budget (CRFB), a nonprofit that advocates for lowering the deficit, that succinctly demonstrates how the coronavirus pandemic has accelerated America's climb towards a 100 percent debt-to-GDP ratio:

 

Source: Committee for a Responsible Federal Budget http://www.crfb.org/blogs/cbo-projects-debt-will-reach-new-record

 

Maya MacGuineas, president of the CRFB, calls the CBO's latest projections "truly eye-popping."

"The last time we borrowed this much, just after World War II, the country ran over a decade of roughly balanced budgets to get us back on the right path," MacGuineas said in a statement. "Today, we face rising health and retirement costs and have no plan to even avoid the looming insolvency of Social Security and Medicare."

Indeed, the main driver of America's debt problem is the federal entitlement programs—Social Security, Medicare, and Medicaid—which account for about half of all federal spending. In a separate report also released Wednesday, the CBO projected that the federal trust for those entitlement programs will fall by $43 billion in the current fiscal year. The economic downturn caused by the coronavirus pandemic has caused payroll taxes, which fund entitlement programs, to decline. Unless Congress takes action, those trust funds will be exhausted within 10 years, the CBO warns.

Meanwhile, Congress continues to debate the short-term question of whether to spend even more money in response to the coronavirus crisis. The House has passed a $3.5 trillion stimulus bill, but Senate Republicans have blocked its passage due, in part, to concerns over whether America can afford to borrow more heavily.

In short, the debt crisis is no longer a hypothetical future event but one that is very much starting to impact the day-to-day and year-to-year budget process. A persistently high level of debt may not be a death sentence for the American economy (though it will almost certainly slow future economic growth), but it has almost certainly reduced America's options for addressing both short-term and long-term crises.

America missed its chance to get the debt and deficit under control. Now, it is thoroughly out of control.

Yes, it is out of control.  And destroying the futures of our children and grandchildren.  The blind supporters of the uni-party should be ashamed.

 

[Muda69]

We're Headed toward Stagnation—Unless the Fed Reins In Its Money Printing

https://mises.org/wire/were-headed-toward-stagnation-unless-fed-reins-its-money-printing

Quote

The US Fed is considering lifting its inflation target above 2 percent in order to revive the economy. Contrary to the accepted practice, the Fed is not expected to raise an alarm if the measured price inflation begins to rise. The US central bank is not expected to counter this increase with a tighter monetary stance as in the past. In fact, the idea is to continue robust monetary pumping until the economic data points toward a strong economy.

According to most experts, when an economy falls into a recession the central bank can pull it out of the slump by pumping money. This way of thinking implies that money pumping can somehow grow the economy. The question is, How is this possible? After all, if money pumping can grow the economy, then why not pump plenty of it to generate massive economic growth? By doing that central banks worldwide could have already created everlasting prosperity on the planet.

For most commentators the arrival of a recession is due to shocks such as the covid-19 that push the economy away from a trajectory of stable economic growth. Shocks weaken the economy, i.e. lower the economic growth, so it is held. As a rule, however, a recession or an economic bust emerges in response to a decline in the growth rate of money supply. Note that a decline in the monetary growth works with a time lag. This means that the effect of past declines in the growth rate of money supply could start asserting their influence after a prolonged period. 

It is likely that the present economic slump was set in motion by a strong downtrend in the yearly growth rate of AMS money supply from 14.3 percent in August 2011 to –0.6 percent by August 2019. As a result, various activities that sprang up on the back of the previous strong money growth rate came under pressure. (Observe that the yearly growth rate of AMS jumped from 0.7 percent in March 2007 to 14.3 percent by August 2009.) These activities cannot fund themselves independently. They survive on account of the support that the increase in money supply provides. The increase in money diverts to them real savings from wealth generating activities and consequently weakens wealth generators.

A decline in the growth rate of money supply undermines various false nonproductive activities, and this is what a recession is all about. Recessions, then, are not about a weakening in economic activity as such but about the liquidation of various nonproductive activities that sprang up on the back of the previous increase in money supply.

Real Savings Fund Economic Activity

Irrespective of whether an activity is productive or nonproductive, it must be funded. At any point in time the number and the size of activities that can be undertaken is determined by the available amount of real savings. From this, we can infer that the overall growth rate of productive and nonproductive activities as a whole is set by the growth rate in the pool of real savings. (Individuals, whether in productive or nonproductive activities, must have access to real savings in order to sustain their lives and well-being. Also, note that money cannot sustain individuals but can only fulfill the role of the medium of exchange.)

As long as wealth producers can generate enough real savings to support productive and nonproductive activities, easy money policies will appear to be successful. Over time a situation could, however, emerge where as a result of persistent easy monetary policy and reckless government fiscal policies, there are not enough wealth generators left. (Wealth generators are badly damaged by loose monetary and reckless government policies.) Consequently, real savings are not large enough to support an increase in economic activity.

Once this happens, the illusion of loose monetary and fiscal policies is shattered—real economic growth must come under downward pressure. Now, if the Fed were to accelerate its monetary pumping while the pool of real savings is declining, it runs the risk of severely damaging further the pool of real savings.

The various commentators who subscribe to the view that the acceleration in money pumping could fix things imply that something can be created out of nothing. Neither the Fed nor the government can grow the economy. All that stimulatory policies can do is redistribute real savings from wealth producers to nonproductive activities. These policies encourage consumption that is not supported by wealth generating production. Without arresting the massive pumping and cutting government outlays, the US economy is heading toward a prolonged slump

Now, the pool of real savings has been badly hurt by the past reckless monetary policies of the Fed, in particular by Ben Bernanke’s Fed in 2008. Also, the recent huge monetary pumping by the Fed, which is mirrored by the large increase in our monetary measure AMS, is going to weaken significantly the process of real savings formation. This in turn is setting the foundation for a prolonged economic slump. Observe that the yearly growth rate of AMS shot up from 3 percent in September 2019 to 60 percent by July 2020.

The response of the government and the Fed to the covid-19, coupled with the likely depleted pool of real savings on account of the past reckless policies of the Fed and the government, has made the economic bust more severe. Contrary to popular thinking, the covid-19 did not set the economic bust as such. It was set in motion by a downtrend in the monetary growth during August 2011 to August 2019.

The response of central authorities to the covid-19 in terms of lockdowns and massive monetary pumping has damaged further the pool of real savings and pushed the economy into a severe slump. I suspect that the pool of real savings is currently declining. The likely decline in the pool of real savings undermines not only false nonproductive activities but also productive economic activities. Consequently, if reckless Fed and government policies that have weakened the process of real savings formation continue, it is quite likely that the US economy could experience a prolonged economic stagnation.

In the meantime, rather than allowing businesses to get on with wealth generation, American politicians are making plans for how to redistribute further the already diluted real savings of the wealth generators. While the White House proposes a $1.3 trillion coronavirus aid bill, the Democrats hold that this sum is not large enough and are suggesting that it should instead be around $2.2 trillion.

There is a way out of the crisis: by cutting to the bone government spending and the closing of all the loopholes for the creation of money out of “thin air.” By allowing businesses to do their jobs, the process of real wealth generation could be activated and the economy could escape the path of prolonged stagnation in no time. All that is required is that central authorities step aside and allow businesses, which know better how to generate prosperity, to get on with the task of growing the economy.