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America has
embraced reckless spending and no longer even pretends it will repay what it
owes. What could go wrong?
The United
States is exploding its debt in a way never seen in its history. The nation has
amassed large debts before, in times of war or recession. But generally it has
paid much of its debt back after the nation has recovered.
Right now, the nation is recovering, according to most
economic indicators. During recoveries under the Coolidge, Truman and
Eisenhower administrations, America paid down much of its debt. But during the
“recovery” of the early 21st century, the nation has continued borrowing on a
massive scale.
America has reached a new level of debt addiction.
On February 9, President Donald Trump signed into law the
Bipartisan Budget Act of 2018. On February 12, he unveiled his own budget
proposal for the financial year ending in 2019. According to the Office of
Management and Budget (omb),
these proposals will see the U.S. borrow $833 billion in 2018, equivalent to
4.2 percent of America’s gross domestic product. It forecasts that America’s
debt will near $21.5 trillion by the end of the year.
America is going into debt at an unprecedented rate, but what
is even more alarming is that its leadership does not acknowledge that this is
even a problem!
It was hard to wrap our minds around borrowing a trillion
dollars to stave off the 2008 financial crisis. But now the Treasury forecasts
that the United States will be borrowing nearly a trillion dollars every year from now
on! That is astronomical.
‘The King of Debt’
America’s attitude on debt has shifted. Everyone once
agreed it was a bad thing, even though no one took any action.
In 2008, then Sen. Barack Obama vocally criticized
President George W. Bush as “irresponsible” and “unpatriotic” to take the U.S.
from $5 trillion to $10 trillion in debt. At least he and other politicians
voiced rhetoric criticizing that massive liability.
Then Mr. Obama was elected president, and he himself added
$10 trillion to the debt in just eight years. By the time he left office, the
debt had doubled from $10 trillion to $20 trillion! That means America no longer owes $30,000 for every man,
woman and child but more than $60,000. Is that irresponsible and unpatriotic?
“The deep, dark
secret is Republicans like to spend money just as much as Democrats. They just
want to spend it on something different.”
California Democrat
Rep. Jim Costa
Now there is not even much rhetoric against debt. When
Donald Trump was campaigning for the presidency in 2016, he bragged
about how much he was able to “prosper” because of debt!
Speaking about his personal businesses, he told cnn on May 4, 2016, “I’m the king of debt. I love debt.” The
next day, Mr. Trump told cnbc
that if he became president, he would borrow knowing that “if the economy
crashed, you could make a deal. And if the economy was good, it was good. So,
therefore, you can’t lose.” On June 22, 2016, he reiterated to cbs This Morning: “I’m the king of debt. I’m great with debt; nobody knows
debt better than me. I’ve made a fortune by using debt, and if things don’t
work out, I renegotiate the debt. I mean, that’s a smart thing, not a stupid
thing.”
It is not a smart thing to accumulate debt! At some point we are
going to see the bubble burst, and we are already seeing some disturbing signs.
When asked what renegotiating the debt meant, Trump
responded, “You go back and you say, ‘Hey, guess what? The economy just
crashed. I’m gonna give you back half.’”
In other words, if the economy crashes, President Trump
says that America will just pay back less than what the nation actually owes.
This is dangerous thinking! It’s never wise to accumulate debt and assume that
if things don’t work out you can always renegotiate. How will creditors like
China react when America says, “I’m gonna give you back half”?
Mr. Trump told cnbc on Aug. 11, 2016: “[T]his is a time to borrow, and to
borrow long term, so that we can have money to rebuild our infrastructure.”
It’s clear that the president is now putting those beliefs
into practice. In his State of the Union Address on January 30, he called on
Congress to produce a bill that includes an additional $1.5 trillion in infrastructure spending. “We will build gleaming new
roads, bridges, highways, railways and waterways all across our land,” he said.
According to U.S. Treasury Secretary Steven Mnuchin, infrastructure will take
top priority this year.
Mr. Trump believes that he knows how to use debt to
rebuild America.
Everyone Loves Debt
The U.S. president cannot raise debt alone. He must have
the support of Congress.
On February 8, Kentucky Republican Sen. Rand Paul delayed
the votes for Mr. Trump’s proposed budget for a couple of hours by delivering a
speech on the floor of the Senate. In his speech, he asked, “How come you were
against President Obama’s deficits and then how come you’re for Republican
deficits? … Isn’t that the very definition of hypocrisy?” He warned that “this
new stimulus of deficit spending will be as big as President Obama’s stimulus.”
Despite Paul voicing his concerns and initiating a short
government shutdown, the Senate passed the bill (71-28), and the House followed
suit (240-186).
“The deep, dark secret is Republicans like to spend money
just as much as Democrats,” said California Democrat Rep. Jim Costa. “They just
want to spend it on something different.”
In December, when Mr. Trump introduced a new $1.5 trillion
tax cut, the Democrats protested, saying it would swell the national debt. But
as the New
York Times pointed out in an article titled, “As Deficit Soars
Toward $1 Trillion, Congress Shrugs and Keeps Spending”: “[D]emocrats are
pressing to secure a sizable boost in spending on domestic programs, including
billions of dollars to address the opioid crisis. And lawmakers from both
parties are looking to approve at least about $80 billion in additional aid in
response to last year’s hurricanes and wildfires” (January 30).
When it is politically expedient, Democrats will condemn
runaway spending. But when it comes to their programs, they always want to spend more.
Sadly, the same can be said of Republicans. Both parties claim they want to be
fiscally responsible, but both keep spending and adding more debt.
The government’s new spending plan will hit the
oft-revised debt ceiling, which is currently at $20.5 trillion, by mid-March.
Rather than raising the debt limit, the new budget deal signed into law on
February 9 completely removes the cap on borrowing until March 1, 2019. This
means the national debt will be allowed to grow unchecked for an entire year.
When the suspension ends, it will automatically be increased to reflect the
borrowing that occurred in the interim. The Committee for a Responsible Federal
Budget estimates that when it resets, it could easily be set as high as $22
trillion.
America
is addicted to debt. We are hooked on it like we are hooked on drugs, and no
one is serious about conquering this nation-destroying addiction.
Debt Is Getting More
Expensive
At the same time that America’s borrowing is exploding,
many are warning that the nation could soon find it harder to borrow money.
Harvard economist and former Reagan adviser Martin
Feldstein told Bloomberg, “It is terrible. Those deficits and the debt that
keeps rising [are] a serious problem, not only in the long run, but right now” (January 31; emphasis added throughout).
America’s debt is so high that investors are getting
worried. “The belief in Washington and on Wall Street has long been that the
U.S. government could just keep issuing debt because people around the world
are eager to buy up this safe-haven asset,” wrote the Washington Post’s
Heather Long. “But there may be a limit to how much the market wants,
especially if inflation starts rising and investors prefer to ditch bonds for
higher-returning stocks” (February 3).
The flash crash of February, when the stock market suffered
its biggest one-day loss in history, was partially caused by higher interest
rates on U.S. debt. The government must pay high levels of interest to attract
investors, which, in turn, increases borrowing costs for companies. Investors
feared these high rates would hurt U.S. companies—companies that are also
addicted to debt.
There is another force ready to push up America’s
borrowing costs. The Federal Reserve has been buying America’s debt since the
financial crisis. The nation avoided economic ruin by applying Band-Aids like
printing vast amounts of money and borrowing from nations like China. But now
the Federal Reserve is getting ready to cut back on its debt purchasing. What
happens if China and other nations also decide to purchase less of America’s
debt?
“Some of my Wall Street clients are starting to talk
recession in 2019 because of these issues. Fiscal policy is just out of
control,” former Congress tax economist Peter Davis told Long
Some analysts are sounding the warning because high
borrowing costs can quickly spiral out of control. The omb forecasts that America will spend $310 billion in the
next year just on interest payments for its debt. Right now, the interest rate
is near its all-time low. If it starts creeping up, the problem will spiral out
of control fast. A
higher interest rate means the government must borrow more money to pay the
interest. The higher borrowing rate will worry investors. They will be less
likely to buy debt, which will push interest rates still higher. And the cycle
continues.
Historian and senior fellow at Stanford University’s
Hoover Institution Niall Ferguson has warned that empires fall when the
interest on their debt equals what they spend on defense. According to the omb, this will happen around 2024. If interest rates increase,
it could come much sooner.
Besides a few conservative economists, who is concerned
about this state of affairs? Which party is concerned about reckless spending
and the effect it will have on the future of our children and the nation?
Warnings From History
In the 1800s, Lord Randolph Churchill said, “The first and
most vital interest of the nation is finance! Upon finance everything connected with government hinges. Good finance
ensures good government and national prosperity; bad finance is the cause of
inefficient government and national depression.”
One could make a strong case that a nation’s first and
most vital interest is the morality of its people, or the strength of its
families, or the rule of law—all matters that America is unconcerned about
losing today. Nevertheless, Churchill’s point should not be ignored. How sad
that you have to go back several generations to get such sound advice and
counsel!
George Washington was concerned about the direction
America would take after he left office. In his 1796 Farewell Address, he
warned his fellow Americans as a “parting friend.” He wrote a lot about how the
country needed to be unified—but today the only thing America seems to agree on
is that we need to spend more money! Republicans and Democrats may disagree
about what
to spend it on, but everyone agrees that we need to keep spending.
Notice what Washington said on the eve of his retirement:
“As a very important source of strength and security, cherish public credit.
One method of preserving it is to use it as sparingly as possible, avoiding occasions of
expense by cultivating peace, but remembering also that timely disbursements to
prepare for danger frequently prevent much greater disbursements to repel it, avoiding likewise
the accumulation of debt, not only by shunning occasions of expense, but by
vigorous exertion in time of peace to discharge the debts which
unavoidable wars may have occasioned, not ungenerously throwing upon posterity
the burden which we ourselves ought to bear.”
Washington specifically warned America to avoid
accumulating debt. This is the exact opposite of what our leaders are doing today. When was the
last time the United States paid down its debt? You have to go back 60 years to
the administration of Dwight Eisenhower!
Debt Is a Moral Issue
Deficit spending is not limited to America’s government.
The average American citizen loves to accumulate debt just as much as his
government does! We are addicted to it at every level of society.
In November, the Federal Reserve reported that revolving
credit among Americans, mostly from credit cards, increased to $1.023 trillion!
That’s an all-time high, even surpassing the 2008 credit bubble burst.
Non-revolving debt—which includes student, auto and similar loans—also
increased, by $16.8 billion to $2.8 trillion in November.
Despite bigger paychecks thanks to
Trump’s tax reform, U.S. consumers in February decreased spending retail
spending for the third consecutive month6.1 percent from January to $492
billion, according to the Commerce Department…that’s three months of decline!
We are a nation focused on instant gratification,
selfishness and greed. This explains why the wealthiest nation in history is
still borrowing astronomical amounts of money. If you want something you can’t
afford, you charge it on your credit card.If you want government benefits the
nation can’t afford, you vote for the politician who promises to borrow money
to give you what you want. President Washington was deeply concerned about imposing a
financial burden on the next generation. But who even considers what kind of
burden we are placing on our future generations?
Living according to the spiritual principle of giving
produces prosperity. Borrowing is about getting for self, regardless of the
consequences.
America’s greed, its debt and its soon-coming financial crisis
will have global ramifications.
Related Story:
"Nearly 8-of-10 American workers, including 10% of
those who make more than $100,000 a year live paycheck-to-paycheck, according
to an August report from CareerBuilder. In addition, almost 75% of workers say
they are in debt today with more than half saying that they never expect to be
debt-free."
Bruce,
the Poor Man- philosopher, social critic
& cynic
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free credit score
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