On The Economy
Today is the day that the government of the United States shuts down because Congress is so hamstrung by politics that it will not pass a budget as the Constitution requires it to do. The government, therefore, continues from year to year on a series of continuing resolutions. This year the President has said that he will take personal responsibility for shutting down the government if he does not get $5 billion for construction of a wall on the southern border. The Democrats, once again led by Nancy Pelosi, say that will never happen, so if no compromise is reached, let’s look at what would actually be shut down.
The Republicans have already managed to pass budgets this year for about 75% of government agencies, such as Defense, Education, Labor, Health & Human Services, Social Security, and Medicare so no threatening or intimidating seniors that they won’t get their checks or medical care. The remaining 25% of government will lose its funding at midnight tonight if no compromise is reached. Upon shut down, some employees deemed to be essential such as Border Patrol and ICE will keep working and getting paid. Non-essential employees which will apparently be several hundred thousand will be furloughed. They will end up getting a paid vacation as usual but I have often wondered why we need so many non-essential employees.
Many positive things have happened with the economy this year. For example, due to lessening of anti-fracking regulations by President Trump, America is very close to achieving energy independence and has become one of the world’s leading exporters of oil and natural gas. The fracking revolution in energy is being felt throughout the economy as lower fuel prices take effect. Here in my city of Memphis Tennessee, the price for a gallon of regular gas has fallen below $2. If it’s cheaper to deliver goods then the price of goods should be lower and demand for those goods higher. Regulations have been reduced in many other areas as well and manufacturing is starting to return to America resulting in more people working and fewer on the unemployment rolls. Trade deals have been completed with Mexico and Canada and pressure on China and Germany is starting to weaken some of the trade disparity that we have seen with those trading partners.
Despite all those positives, and I’m sure there are many more, there are ominous signs hanging over the United States economy right now. First, remember what government is; an organization with a monopoly on force within a certain geographical area. Government is the only organization that can legally use force against people who haven’t harmed anyone. Government, in its very essence, is force and everything that people normally think of coming from the government is taken from the members of society by force. Government is, therefore, very dangerous and always threatening to overwhelm the society it is supposed to protect and so it must be strictly limited. The necessity of strict limits has not been adhered to by our representatives and that failure has caused most of the problems I am about to discuss.
Granted, some of these problems can be resolved by high growth, or at least that’s what government often tells us. I’m certainly for tax cuts and often wish my tax burden could be lessened, but tax cuts need to be accompanied by spending cuts to match them because that is the road to fiscal solvency. We are told that the tax cuts will pay for themselves, that it worked for Reagan and it will work now. That’s good, and I hope it is accurate information, but let’s look at some numbers as they exist right now. The official debt of the United States now stands at $21.7 trillion and it rises every day, every hour, every minute. The interest payment on that $21.7 trillion currently stands at $263 billion per year. That amount reflects the almost zero rates held low by the Federal Reserve during the entire Obama presidency in order to reduce the government’s burden and to encourage indebted people to borrow even more.
Much of the current debt is short term meaning it has to be rolled over at maturity so in addition to $21.7 of debt, there is now about $1trillion of new debt that has to be floated each year. What happens if all that debt can no longer be financed at current interest rates? Rates are now on their way up and the Fed seems committed to continuing that policy. Raising interest rates in the face of a stock market struggling to remain even for the year seems like insanity or else someone has an agenda to intentionally damage the market and the economy.
Yes, the FED through its chairman Jerome Powell just announced another rate increase this week which will take rates from 2.25 to about 2.5% and the decision to raise at least twice again next year was also announced. That is an ominous sign of things to come. If rates climbed to 12%, a level reached in the early 80’s, the interest alone would be $2.5 trillion per year so you can see that government survival depends on keeping interest rates low. $263 billion represents 7% of current spending but what would it be with rates of 10-12%.
By the end of 2018 the US Treasury will issue over $1.3 trillion in new debt or more than twice as much as last year. Financial analysts expect the deficit to hit $1.5 trillion in 2019 and that is assuming there is no recession. That means that the federal government is expected to spend $1.5 trillion more than it takes in next year. If there’s a recession, no matter how mild, and the FED seems committed to starting one, tax revenue will be reduced and the deficit will be even higher. Trillion dollar deficits mean a lot of new debt and a lot of new Treasuries to finance it.
Rising government debt along with rising interest rates indicate that the FED is trying to slow the economy and that is not good news for those of us who work, pay taxes, pay house notes, car payments, credit card payments, medical bills and the like. What can we in the middle class do to prevent or fix this; nothing, but there are some protective actions you might consider. By the way, don’t worry about the rich, they will be OK because they can liquidate a few investments, hire enough bankers, lawyers, and accountants to get by. Likewise for the poor, because first of all they have nothing much to lose and second the government will make sure they don’t lose that. What about the rest of us then, what about the 50% who actually pay taxes? We will be destroyed and driven to the bottom unless we can take some preventive action such as liquidating past financial mistakes and paying down and ideally getting out of debt.
Even if we use the government’s own forecast, which assumes no recessions ever, no wars ever, and no other kind of crises ever, the federal debt will continue its growth and within 10 years will hit $35 trillion. Who will buy all this paper or said differently who will lend the money so the government can continue its spendthrift ways.
It sure doesn’t look like it will be the Federal Reserve. The FED accommodated President Obama by creating all the new currency units he wanted and then creating even more to buy the debt from the government. The FED currently holds about 11% of US Treasuries, and is apparently not going to do Donald Trump the same favor. Instead, it is trying to unload the trillions it bought from Obama. This selling of Treasuries by the FED and others will undoubtedly push interest rates up.
China and Japan are large holders of Treasuries and both are doing the same thing the FED is doing. Foreigners, mostly China and Japan, hold about 32% of US Treasuries and they seem unwilling to help with the financial problems of the US. China started selling in September and don’t expect it to stop as long as trade tensions run high. Japan has sold twice as much as China as a percentage and Russia has reduced its holdings by 86%. This selling by foreigners will help drive up US interest rates as the supply grows but the demand shrinks.
At current debt levels, not with a trillion plus added, but at current levels, a 1% rise in rates means an additional $210 billion in interest payments. If rates rose to their historic averages, the interest payment would exceed the current defense budget.
What’s going on here and what does all this mean? First of all, it means that the welfare-warfare state that has been building since the end of World War ll has grown so large that the US can no longer afford the interest payments to finance it. The added risk of higher and higher debt levels will continue the upward trend of rates. The good news is that GDP (Gross Domestic Product) has increased 35% since 2008 so the US is becoming more and more productive, but the bad news is that the national debt has increased 122%. As of today the debt to GDP ratio stands just above 106%. That means that America produces more debt than it produces goods and services. Federal spending has increased 7% this fiscal year but tax revenues only 1%.
In conclusion we don’t have to speculate whether or not the deep state is out to get Donald Trump. It is obvious for anyone to see that the power elite want to overturn the results of the 2016 election and using a corrupt FBI, CIA, and justice department to frame several members of his administration on unrelated charges is one of its methods. The second method appears to be an attack by the Federal Reserve along with a few foreign governments. The FED creates more debt by raising interest rates but then will not only not buy but it sells what is has thus tanking the economy.
Finally folks, is the FED and the rest of the deep state trying to destroy Trump by collapsing the US economy and is the deep state and the FED evil enough to destroy the American middle class in order to do the political will of its masters? One of those is open to discussion but the other you can make book on.
American Freedom Defense Initiative
Idaho Freedom Foundation
Media Research Center
Middle East Research: MEMRI
National Taxpayers Union
US News and World Report
Vote Smart Info on Politicians
The Weekly Standard
World Net Daily