Dickens’s Scrooge woke up and was relieved to know it was all just a dream. And he had time to change his ways before a very ugly future unfolded. Aren’t Christmas tales fun? You get a second chance.
Our government and our Fed will get a chance to save us from an ugly future. Let’s hope they are as salient as Scrooge. But then Scrooge didn’t have to be re-elected or face the press each day.
Larry stop cracking your knuckles in the living room. My mom often warned me that if I kept up that annoying habit that someday my hands would be a mess. I should have listened to mom.
I took a look at the bi-partisan budget outlook published by the Congressional Budget Office last August (cbo.gov). It amazes me how little attention it is getting. The warning could not be any clearer but alas our elected leaders will spend their time on a prison Cuba, arguing the correct name for terrorists, and giving young people free Community College experiences. Not that these issues are unimportant but it is pretty clear that we are putting ourselves in extreme financial jeopardy by ignoring or papering over what our government is doing to us—and our progeny.
I have moaned about the concept of jeopardy in this space before. I am not speaking of Alex Trebeck. Jeopardy is a state of being that opens you up to consequences. When you try to scale a vertical cliff, you put your health into jeopardy. When you wear last year’s trousers that are a bit too tight, you put yourself into social jeopardy. When the government creates too much debt it puts our economy and millions of jobs into jeopardy.
Many of my blue friends are saying – Larry quit your whining. The unemployment rate is down and the economy is growing. Roses are blooming and young women are wearing yoga pants. What could be better! I can think of a lot of things that could be better but I will try to stick to my message. Jeopardy means that today the cool breezes are flowing through your ample locks – but that also means you might land on your head tomorrow.
When things are good is the only time you can prepare for the future. So if you miss that opportunity then things will only get worse. When you are young and your income is ample and rising, that is when you save for the future. If you do the saving, then when misfortune hits, you can take care of yourself. It is pretty simple. You DON’T wait until after the loss of employment to decide it is a good time to save money.
And that is what we threaten to do now with our country. Go to cbo.gov and look at the tables in the August report cited above. Before the last recession our net national debt held by the public (the gross debt is much bigger) was $5 trillion and about 35% of the economy. By 2014 it had risen to almost $13 trillion or 74% of the economy. It is expected to rise to almost $21 trillion by 2024. It will then be 77% of the economy.
Some of you will say that 70+% net debt is sustainable – at least for a while. The debt exploded during a recession and the following slow growth time period. But notice that it is getting even bigger during a future time characterized as at least moderate if not strong economic growth. So if our representatives do not make major strides to fix the debt, it isn’t going to fix itself. The economy is not going to fix it either.
But that story is too optimistic. The recession lasted through 2009. That means it has been almost six years since the last recession. Which means another recession is coming. I won’t quote the average time between recessions but clearly it is highly unlikely that we won’t get a recession in the next few years. If you look around at what is happening in China, Japan, Greece and so on…you realize that the chances of a US recession are improving all the time.
If we do enter a recession or a very slow growth period what do you think is going to happen to the US budget? Correctomundo– tax revenues will fall, expenditures will rise, the deficit will widen and the debt will grow. If you were comfortable with a net debt of 77% then how about a debt of 100%? How about 150%? Is there a point at which you will admit that something needs to be done? Why not do it now before we reach than unenviable rock and hard place?
Some of you will puff out your chests and note that our deficit came down to $0.5 trillion in 2014. But that doesn’t help. The CBO report projects a deficit every year through 2024 rising each year to an amount equal to $1 trillion in 2024. I hate to tell you but that is not progress. That is like the 240 pound guy who gains 5 pounds a month and reaches 300 pounds during the year saying he is going to start gaining only 3 pounds a month as a way to lose weight. He is going to weigh 336 next year!
That’s what we are doing with the nation’s deficit and debt. Current projections say it will go from about $13 trillion in 2014 to almost $21 trillion in 2024. It won’t be easy to get this country on a real empowering diet. The main problem is that we are already hemmed in by so-called mandatory spending and net interest growing by about $2 trillion over the next 10 years. If we don’t stop mandatory spending, then we don’t have much else to work with!
I have punished you enough today. The President plans to punish you even more tonight. Tell him it is time to address the national debt.