You have surely never believed the Biden administration’s assurances that the economy is strong and federal finances are all headed in the right direction. Like everything else these days, this has always felt like gaslighting.
Gross domestic product and labor numbers keep being revised downward and inflation is still on the march. The agencies have outright lied about the data that they're reporting. The higher interest rates were surely going to create a serious problem for federal finances, not that anyone in a position to fix the problem cares about the future.
That much we knew. But the extent of the problem comes as a bit of a shock. The budget group Committee for a Responsible Federal Budget has run the numbers and offered a forecast for next year. It sees the budget deficit doubling to $2 trillion by next year. We’ve never seen anything like this in times when everyone says that things are back to normal.
They're far from normal. There's a real crisis brewing. It's happening even as the Biden administration is bragging about bringing down the deficit. That turns out to be entirely temporary, as one might expect. The truth is far more grim.
In the data that we have already, payments on the federal debt are already at $1 trillion as a result of the Federal Reserve's increase of rates to combat inflation. Again, we’ve never seen anything like this. Honestly, it feels like the end times. I personally recall the panic in the 1980s about the deficit. Those times aren't even close to comparable to what we face today.
How the heck did this third-world-style disaster take place?
Let’s review the past four years and how we got here. There was a virus and the United States copied the Chinese Communist Party’s (CCP's) plan for virus control. All public health elites got on board with what are called non-pharmaceutical interventions, which can be hand washing but can also be massive and brutal shutdowns. For some reason, a mania overtook the learned class and they cracked down on any and all human activity, including shutting down playgrounds and schools.
Apparently, some muckety-mucks wanted to try out a science experiment on the whole population. Trusting as the Americans are, most people went along with it, thinking that staying away from each other and shutting down enterprises would somehow trick the microbial kingdom into bowing to the wishes of politicians and bureaucrats.
Future historians: Yes, this really happened.
This created an obvious disaster. You can't merely “shut down” an economy for a time and turn it back on, despite what they promised President Donald Trump, who greenlighted the entire cockamamie plan. To cover up for the forced disaster, the White House worked with Congress to spend many trillions of dollars in stimulus payments. What possibly could be the downside?
The problem was that the money wasn't there. The Treasury Department created many trillions of dollars of debt, for which there was no market at such low interest rates, which had been the norm since 2008. As a result, the Federal Reserve got busy and bought it all with freshly created money. This new money watered down the value of the existing money stock over time. It took 12 months, but the inevitable inflation started.
The managers of the Federal Reserve knew three things: 1) The policy since 2008 was unsustainable anyway, 2) they had been trolled into creating vast new money under the guise of pandemic planning even though the virus turned out not to be that deadly, and 3) inflation was discrediting the entire institution and had to be stopped.
So the Fed set on a course that would increase the interest rate by the fastest and the greatest amount on record, even higher and faster than in 1979, which is the last time this problem presented itself. This kind of increase—which even then barely scratched into the positive range in real terms because of inflation—was bound to cause an enormous shock to the fiscal system.
The issue is that the federal government pays holders of its own bonds. For a decade and a half, it had been pure luxury: The government could run up all the debt it wanted and not face new costs. With the Fed’s policy, all of that changed. In a seeming instant, the budget deficit has doubled! This is a true fiscal disaster. And it happens at a time of declining tax revenue due to recessionary trends that began with lockdowns and haven’t really gone away.
As a result, the government now faces an epic fiscal disaster with no solution. And the public is so angry at the government in general that appetites are very high just to let the whole thing default rather than go through another round of tax increases or inflation to deal with it.
Truly, at this stage, what percent of the public would gladly shut down the federal government? Is it 20 percent? Thirty percent? Higher? I don’t know because opinion polls never ask such questions.
There's really no solution to this disaster except extreme budget cuts. The appetite for those among the public is high, but among the Washington elite, it's very low. That’s the last thing the ruling class wants.
The next stage will be a further downgrading of the rating quality of U.S. debt, sending more people into fits of rage. But there'll no longer be any denying of reality. We’ve done that as a nation for far too long. We’ve printed money and created endless illusions of forever prosperity without paying for it. Those days could now be at an end.
There was a time in this nation’s history when we weren't so profligate and idiotic. When was it? Perhaps in the first and last quarter of the 19th century. We’ve had bouts of sanity since then, but not many.
This time, there seems to be no way out except to face the facts. Sadly, we live in a period of American history in which facing facts is the last thing the ruling class wants. Still, the relentless realities of accounting might force that logic in any case.