Tuesday, March 9, 2021

SO, WHY DOES THE NATIONAL DEBT MATTER?

by Rod Williams- I recently posted an essay explaining why the $1.9 trillion stimulus bill was a disaster and puts our nation at risk. I don't want to sound like an alarmist but this is alarming.  This may be "the straw that breaks the camels back."  If this does not turn into a disaster, it is because we dodged a bullet and bad things that could happen, just didn't happen.  We have no margin of error in order to avoid a disaster. We cashed in the insurance policy. We only avoid a disaster if none of the several things that could go wrong, don't happen.  If someone is not concerned, they are not paying attention.


I am amazed that not a single Democrat senator was concerned about the consequences of such a move and voted against it. These are I assume, for the most part, educated and smart people. I find it hard to believe that they can be so at peace and unconcerned about the step they have just taken. Maybe they really do believe in modern monetary theory that debt doesn't matter.  It is hard to believe most would even know of this fringe theory, let alone embrace it. 

Remember when their used to be "blue dog Democrats," who advocated fiscal responsibility?  There weren't many of them, and even then they didn't often vote the way they professed to believe, but they at least paid lip service to fiscal responsibility. Even a recognition that we need to be fiscally responsible  has been tossed out the window.

This spending bill is different than anything else we have done before.  Not only because of how large is the price tag but because the circumstances in which we passed it are different than times at which we have engaged in massive spending before.

I am not sure on a personal level what one should do to protect themselves. For all of those who talk of buying gold and burying in the basement, I am not there yet, but they don't sound as crazy as I once thought they were. 

We may have an economic collapse that in turn leads to civil war and massive deprivation. We may live to experience a post apocalyptic world.  More than likely, we will have a declining economy, gradually lessening of economic growth and then no growth and a shrinking economy and more and more people falling into poverty. Instead of America being near the top as one of the wealthiest nations on earth, we will likely fall to the middle of the pack.  Without America's leadership, the threat of the ascendancy of aggressive authoritarian regimes grows. Famine and pestilence is likely in increase.  The future is not bright.

There is a lot of wealth in America and for maybe a generation we can live off of accumulated wealth.  Parents with assets will pass those assets onto their children, and government can tax wealth for a while.  Those without accumulated wealth will fall further behind. A shrinking economy along with wealth redistribution policies will overtime cause the accumulated wealth to diminish and our standard of living will fall and generation after generation will have it worse than the previous generation.

Even if Republicans can regain control of Congress in 2024 and the presidency in 2026 or 2030, I am not very confident that we can restore the economy to vibrancy and our country to solvency. The money is already spent.  If there was the will, a sizeable amount of it could be impounded and spending cancelled, but that would require a change in attitude of the American people.  Unfortunately, the Republican electorate is just as likely to elect populist who stroke resentment against "elites," as they are responsible economic conservatives.

Just as we cannot spend ourselves into solvency or prosperity, we cannot tax ourselves into solvency or prosperity or tax-cut ourselves into it either.  Democrat policies could make the coming collapse even more likely and sooner and Republican policies could slow the decline and maybe, over time, reverse the downward trajectory but we have rough sailing ahead, even under the best of circumstances.

The below from the Peter G. Peterson Foundation and explains why the debt matters:

SO, WHY DOES THE NATIONAL DEBT MATTER?

FISCAL RESPONSIBILITY IS ABOUT: PREPAREDNESS

None of us can say what the next major test of our nation will be — whether it’s an economic downturn, a national security threat, a climate disaster, another pandemic, or some other crisis. But as a wealthy nation, and with people’s lives and livelihoods in the balance, we must do more to prepare for the unexpected. 

Preparedness includes determining national priorities — and finding ways to pay for them. It means making smart investments that benefit our economy over time. It means investing in our national security so that we can address new global threats, like cyber attacks. It means having stockpiles of essential supplies, so we are prepared for the unexpected. It means strengthening our safety net to help support and sustain the most vulnerable in society. 

The truth is that we can’t adequately prepare for the future without a solid fiscal foundation. A sustainable budget will ensure that we have sufficient resources, in good times and bad, to meet the needs of our citizens and cope with whatever future challenges we may face.

FISCAL RESPONSIBILITY IS ABOUT: ECONOMIC OPPORTUNITY AND JOBS 

Today's debt threatens tomorrows economy. America’s fiscal health and economic strength are inextricably linked. We can’t have a strong economy over the long run without a stable fiscal foundation. Debt already exceeds the size of the entire economy and is on track to grow far out into the future, reducing our ability to invest in areas that provide the jobs and growth that define the middle class. 

Right now, we’re spending nearly $1 billion every day on interest on the debt. Over the next ten years, the interest tab will grow to total nearly $4 trillion—and it will more than double every ten years thereafter. So in many ways, instead of investing in our future, we’re paying for the past. Rising interest crowds out priorities like education, infrastructure and scientific research—key engines of growth and prosperity for our nation. 

A sustainable fiscal outlook is an investment in our future economy, supporting vibrant growth over the long term, with rising wages and greater opportunity, productivity and mobility. Putting our nation on a sustainable fiscal path creates a more positive economic environment, with increased access to capital, more resources for future public and private investments, improved consumer and business confidence, and a stronger safety net. 

FISCAL RESPONSIBILITY IS ABOUT: THE NEXT GENERATION 

A moral obligation to the next generation. The next generation will know debt like no other. Personally, they are burdened by record student debt. But they are also entering the workforce during a time of unprecedented economic uncertainty, in a nation with crumbling infrastructure, a climate in crisis, rising inequality and racial injustice. 

At the same time, they will inherit an unwelcome and costly legacy in the form of America’s $27 trillion — and rising — national debt. We are morally obligated to ensure the next generation is able to define their own path, to control their own destiny and choose their own policies, without the burden of forever paying for our own current needs. 

A just and moral America is founded on the principle that we leave the next generation better off — with the financial freedom to decide how to direct their own future resources in the most effective, equitable and prosperous way. Our fiscal capability is the foundation that creates opportunity for the next generation. 


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