Borrow Like There's No Tomorrow

The silence lately about America's public debt problem has been deafening. When nobody wants to talk about a problem, avoidance is always a solid indication that we've gone into deep denial about that problem. The public debt is the well known "elephant in the room" that nobody wants to see. Thus I am and am not surprised at the tepid response to the Hugh Jidette (a word play on "huge debt") for president campaign. Here are a couple examples—

 

The facetious Hugh Jidette campaign is being run by the Pete Peterson Foundation. You can find the details at OweNo.com. Here's the challenge—

Here’s how we’ve gotten to this point: The federal government has to borrow money when the revenues it collects are not enough to cover the amount it spends — a budget deficit.  Over the last 10 years and at other times in history, our government has run large deficits.  During these years, the government has borrowed more and more to make up the difference.  Today our accumulated national debt stands at a staggering $44,000 for every person in America.

Of course, like with a credit card, carrying a “balance” is not free.  Our government now spends about $200 billion every year just on interest payments, and we get nothing for it.  Half of this money goes overseas to foreign countries that own our debt.

That’s bad, but the worse news is that our debt is projected to grow and grow far into the future.  This is due to several factors, including the rapidly increasing cost of health care, and the fact that people are living longer. In the next few decades, the number of people aged 65 or older is projected to double, which means more people receiving more benefits.  Official government projections show federal debt doubling by the 2020’s, tripling by the 2030s and even quadrupling by the 2040’s.  That means that, unless we change our course, $13.6 trillion could grow to more than $50 trillion.

If America were to borrow this much, interest costs would explode.  By 2027, interest would be the largest item in the federal budget.  Eventually, interest would take up 100% of all of the money the federal government collects...

Of course, our debt problem will never get to the point where all the government does is make interest payments. I most recently covered the debt problem in The Debt Countdown Begins, so I won't repeat what I said in that post. But I have a few things to add about the silence.

Our general denial about the debt is all the more remarkable because we are witnessing debt obligation crises in California, New Jersey, Illinois and many other states, cities and municipalities. I don't usually cover this issue because Mike Shedlock ("Mish") covers it thoroughly at his popular blog Global Economic Trend Analysis. There's simply no way in hell the states, cities, etc. can cover the pension and other benefits they've promised to public employee unions.

All those agreements must be renegotiated or there will be defaults. That's all there is to it. Yet, public employees are fighting like crazy to keep these benefits which eventually will not be paid because they can not be paid. Thus they are shooting themselves in the head.

Although there are substantial differences between a "dead-beat" state like Illinois and the United States—America has an army, a navy and a money printer, whereas Illinois does not—the similarities outweigh the differences when it comes to un-payable debt obligations—except, that is, where denial is concerned. Whereas people like New Jersey governor Chris Christie are now trying to actively deal with the problem, which has made him a hated figure to teachers and firemen, the denial at the federal level is like a suffocating blanket.

In fact, misguided Ohio Congressman Dennis Kucinich wants to introduce legislation that would take the money printer away from the Federal Reserve and give it to the Congress. We could wipe out our federal debt obligations in no time! I'd like to go on the record right now in saying that this is the single stupidest idea I have heard since our economy melted down. Just how far up your rear-end do you have to have your head to come up with an idea like that?

The notion that America's debt problems are merely political problems— just another squabble between liberals who don't care about debt versus conservatives who do—is easily the second stupidest idea I have heard in recent years. I'll cover the details in a future post, but it boils down to this: paring down debt requires austerity, and thus some of the pigs at the trough must eat less. Who will be forced to go on a diet? Nobody wants to give up their Free Lunch, so nobody is willing to take the debt problem seriously.

So-called liberals like Paul Krugman or Dean Baker rationalize debt problems away, saying interest on the debt doesn't matter in the long run. This is a very deep form of denial. So-called conservatives pretend to care about debt and the size of goverment, but then they run up the debt as fast as they can whenever they get the chance, or they create brand new agencies we don't actually need—see Homeland Security. Again, this is another deep form of denial. My aphorism is politics makes you stupid.

Thus the enduring prescription is: borrow like there's no tomorrow. But one day soon, tomorrow will come.

 

Comments

[Queenbee]

Government debt isn't important if you have no intention of paying it back. Just like the banks don't need to have your money in their vaults as the banks know Americans will not walk in en masse and remove everything they have. What we need is a good movement to take all of our money out of JPM/Chase, Wells Fargo/Wamu and Bank of America. Why would anyone do business with these TBTF? I'll tell you why it is because the average American has the IQ of a Chimp and that is giving the Chimps a bad rap.