For some, $31.4 trillion in debt is not enough. They want to pile up $2 trillion in annual deficits (and growing) every year until interest payments alone will crush us in the near future. That is the debt default we face. Forcing a balanced budget or a modest step toward it by refusing to run up more debt without reform is the way to fix it. Now it’s time for Republicans to get on message.
The long-term problem is default regardless of debt limit
Not only are we facing national bankruptcy if we fail to trim government largesse, but we will face default on the debt unless we lower the debt, regardless of the debt ceiling. The COVID destruction of the economy and biblical deluge of spending and debt those policies unleashed finally broke the government’s Ponzi scheme. Interest rates on treasuries will have to remain elevated and likely rise even more for years to come. This means that the Federal Reserve can no longer service massive amounts of debt on the cheap. At 5% interest and climbing, our annual interest on the debt will rise above $700 billion a year and very soon surpass the cost of military spending.
The projected deficits will rise from an unfathomable $1.5 trillion to well over $2.2 trillion at the end of the 10-year budget window. According to the CBO, the projected cumulative deficit over the 2024–2033 period will be $20.2 trillion, and we know these numbers always have to be revised upward every year. So this is no longer about the solvency of Social Security. We won’t even make it to the point of a Social Security crisis, because the interest on the debt alone, in conjunction with the vicious cycle of inflation, stagflation, and accelerated interest rate payments will make us insolvent within a few years. As the CBO reports, during the first seven months of this fiscal year, “the largest single increase was in net outlays for interest on the public debt, which rose by $107 billion (or 40 percent).”
It’s not just a problem of public debt, but of personal debt as well. With the endless stagflation – with the cost of living rising much quicker than wage increases – the average family can no longer afford food, fuel, housing, and health care. What happens when interest rates skyrocket concurrent with the rising cost of living? Take housing for example. The average mortgage on a median-cost house today is more than double what it was just three years ago. Home prices are up 56% at the same time mortgage rates have doubled. That’s a recipe for pricing out an entire generation of first-time home buyers from the market.
\u201cThe mortgage payment needed to buy the median priced home for sale in the US has moved up to $2,566, a new all-time high.\u201d— Charlie Bilello (@Charlie Bilello)
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Thus, the overarching message the GOP needs to convey is that the problem here is the debt, not the debt ceiling, much like you don’t blame traffic on stop signs or red lights, which are needed to keep people alive. We could permanently abolish the debt limit tomorrow, but it won’t matter because the music on this Ponzi scheme of musical chairs has ended.
There is no short-term threat of default unless Biden defaults on purpose
It’s abundantly clear that inaction on the debt is not an option. We need to do surgery now. But forcing brinksmanship over the debt ceiling will force immediate default, right? Nope! Only if Biden purposely defaults. Treasury Secretary Janet Yellen wrongly asserted that if Congress fails to issue more debt authority immediately this month, “We have to default on some obligation, whether it’s Treasuries or payments to Social Security recipients.” That is simply a false statement, because we have enough revenue to cover three-quarters of what the feds what to fund.
Here’s the back-of-the-envelope math: The Treasury takes in enough revenue to account for about three-quarters of the$6.8 trillion budget Congress passed last year. In that sense the debt limit is an instant balanced budget, which some are estimating will begin to come due on June 15. We take in $4.8 trillion in revenue. Net interest on the debt is $663 billion. So as long as the government pays that interest, there is simply no default on the debt. Period. What about other payments? Here are some of the important ones:
- Social Security: $1.3 trillion;
- Medicare (net, minus offsets): $820 billion;
- Defense: $800 billion;
- Veterans’ programs: $173 billion.
The simple fact is that there is enough money to pay for these programs and interest on the debt, with roughly $1 trillion left to spare to focus on the core discretionary agencies and elements of Medicaid. Obviously, the more meaningful terms are the monthly and weekly revenues and outlays, but this is a rough sketch showing that the money exists to pay the top obligations while we have a national debate over how to prioritize the remaining funds and under what conditions we should issue more debt to fund other spending. There is no default under this scenario, just an eventual government shutdown, which wouldn’t be a bad thing, given the behavior of our government agencies. It’s those agencies that would shut down.
For example, according to the CBO, the outlays for the Department of Education this year were 56% higher than last year. There is no reason for that. Outlays for the FDIC increased by $39 billion over the same period because of the bank bailouts that weren’t supposed to be bailouts. It’s worth shutting down these agencies until we get agreement to fund them at a more modest level.
We either do this now from a position of strength or do it later when the debt and inflation are even more crushing. We will be forced to balance the budget once stagflation dries up the ability to service debt while also drying up tax revenue. If we wait much longer, revenue will plummet even more. While government outlays are up 12% from last year, total receipts are down 10% from last year. April’s revenue haul from Tax Day was extremely disappointing. The inflation bubble, created by the very debt we are debating, is crushing the economy and therefore dampening tax revenues. In that sense, the crushing debt actually affects both revenue and outlays.
\u201cUS retail sales increased 0.5% over the last year, the lowest growth rate since May 2020 & well below the historical average of 4.8%. After adjusting for inflation, though, the story is far worse. Real retail sales fell 4.2% over the last year, the 6th consecutive YoY decline.\u201d— Charlie Bilello (@Charlie Bilello)
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To that end, rather than accentuating the talking about avoiding default and blaming Biden for not negotiating, Republicans should pass a bill forcing the Treasury to prioritize payments beginning with interest on the debt, then Social Security, and go down the totem pole of priorities from there. This will take the talking point of default off the table and will allow us to focus on the actual long-term problem, which isn’t even so long-term.
Just consider the words of Barack Obama in March 2006 in explaining his vote against a debt ceiling increase eventually signed by President George W. Bush:
Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America’s debt limit.
That was when our debt stood at $8.6 trillion, a little more than a quarter of where it is today. When and where will the buck ever stop?