Government services cost money.
Well-meaning politicians who gain elected office and desire to help their constituency through government action have traditionally had few options: (1) Eliminate an existing program (and its cost) and substitute the new one; or (2) raise taxes to pay for expanded government.
Since all existing government programs have political constituencies (citizens who utilize that program, like Social Security), there is a political cost to eliminating ongoing programs. There are comparable political costs to raising taxes.
So, what is an elected official to do in the face of public demand to…do something about this or that critical issue? It is literally a Catch-22 situation.
The Federal government can borrow money via the selling of bonds (U.S. Treasury certificates) to private investors. This is comparable to consumer credit card debt: buy something now that you can’t afford and pay for it (along with significant interest) later. In the case of the Federal government, money borrowed to “live beyond your means” will be repaid by future generations in the form of reduced services or higher taxes.
There is no such thing as a free lunch: someone either pays now or later…but the bill must be paid. “I didn’t raise your taxes!”, a politician might claim. What he didn’t tell you is that he raised them on folks who cannot vote against him (your kids and grandkids)!
Profligate government borrowing has been a dishonest means of politicians dodging fiscal responsibilities for decades. The “National Debt” is the sum total of all that borrowing so that elected officials can lamely profess that they held the line on taxes. The National Debt is now $23 trillion, which exceeds the Gross Domestic Product of the United States. Debt service (interest paid toward the National Debt) accounts for approximately 8 percent of the annual Federal Budget.
Unbalanced Federal budgets (expenses exceeding income) have become commonplace throughout the past four decades regardless of which political party controls Congress or the White House. Politicians, Red and Blue, like to spend money, period.
Our Nation has now come to the point that private investors are wary of buying U.S. Treasuries, because the American economy is weakening and the interest rate on these bonds are minuscule. Just about any investment is better than a 10-year bond returning one percent interest.
So, now what do our Federal officials do? They can’t “borrow and spend” like they’re used to. How can they continue to spend, particularly now, when the economy is in the toilet and many people are hurting?
They can print more money, lots of it. This allows the our elected officials to “do something” to ease suffering in the depressed economy. All that money filtering down to needy folks will provide food, shelter, keep creditors at bay for a brief spell, and keep small business doors open just a bit longer.
Hopefully, the economy will turn around before long and normalcy will return. That’s the hope, anyway.
President Biden’s recent $1.9 trillion stimulus bill is the latest finger in the dike, similar to President Trump’s two previous stimulus bills totaling $3.1 trillion that were approved in 2020. That’s a total of $5 trillion in phony money (not a by-product of goods and services) simply printed up at the Mint and released into the economy over a 12-month period.
It is political magic: no taxes raised, and gobs of money shipped off to grateful voters and businessmen.
Again, the reminder that “There’s no such thing as a free lunch”. Someone will pay for this spending spree.
We’ve already begun to notice rising costs for essentials like food, housing and fuel. It’s called “inflation”, and we’d better get used to it. That is one of the costs of too many dollars chasing a finite amount of goods. The cost of living will be going up, possibly way up, in the next few years. This means that the standard of living, for most Americans, will fall.
The stock market has been on the rise for over ten years. This meteoric accomplishment has been accomplished using two kinds of rocket fuel: (1) Extremely low interest rates set by the Federal Reserve (currently a prime rate of zero), encouraging reckless borrowing by corporations and speculators; and (2) The “free” stimulus money shipped to citizens who didn’t really need it, so they invested in equities. Stock prices have, accordingly, risen to levels that are not supported by earnings and dividends: they are artificially high.
An all-time stock market “bubble” situation has developed on Wall Street and…a financial reckoning is coming. It could be a doozy, making the 2008 collapse seem tame in comparison. Many experts predict that it will happen in the next few months.
The worst part of all of this is that the Federal government has now used all the arrows in its economic management quiver. If the economy goes into the shitter, our Washington D.C. leaders won’t be able to borrow money, and more “stimulus” escapades with phony money will exacerbate the inflation problem at exactly the wrong time.
What America needs to worry about over the long haul is the continuing status of the dollar as the world’s “reserve currency”. If our economy is mismanaged, and the Nation goes into decline, the dollar could be replaced by another currency…which would further exacerbate our problems.
China, not America, now commands the world’s strongest economy. In the event of a significant collapse in the American economy, the Chinese renmimbi could replace the dollar as the world’s reserve currency. This would obliterate our Federal government’s ability to borrow, interest rates would go up, and inflation would spike due to higher cost of imports.
The forty-year free lunch would be over.