Is America Fiddling While Rome Burns?
While the U.S. Senate was busy approving another $95 billion for various foreign policy purposes, two important things were happening to which almost no one in Congress was paying attention. One was the released January inflation data; the other was the updated Congressional Budget Office (CBO) 10-year fiscal outlook.
Both contained terrible news about the economic and financial present and future of the country—and are more closely connected than it would appear at first sight since a good deal of the money printing that has contributed to the present inflation stems from the fiscal mess originating in the gaping disconnect between the government’s expenditures and its revenue. By crowding out private enterprise and loading the country with too much debt, the fiscal and monetary wreck has, in turn, played a major part in making the country’s economy a lot less dynamic than it once was.
Despite the Fed’s efforts to periodically change its preferred measure of inflation and look for creative ways to avoid excessively depressing news, the annualized inflation data for January was bad whichever way you look at it—CPI (3.1%), core CPI (3.4%), super core CPI (4.4%), etc. These figures are extremely deceiving in the eyes of the public, whose personal experience of price inflation is much more traumatic than the percentages would suggest. For instance, since the beginning of the pandemic in 2020, wages are up only 15%, while residential housing is up 45%.
The CBO’s updated fiscal projections paint a very nasty picture of the future, indicating that a lot more money will have to be printed in the coming years. The prospects for an environment in which modest inflation allows the Fed to engage in new bouts of monetary repression, i.e., criminally low interest rates, are not looking bright at all.
Do you remember the last time the White House browbeat Congress into raising the debt ceiling? That was in June. Do you remember the promise that the government would slash US$1.5 trillion from the fiscal deficit in exchange for raising the debt ceiling in the next ten years? Well, according to the CBO, another US$20 trillion of accumulated deficits are in stall for us in the next ten years. The annual US$2 trillion mark will be reached in 2026; by 2034, the gap will be at least US$2.6 trillion.
Is the CBO exaggerating? Actually, it may be doing the opposite. It assumes that interest rates will come down to an average of 3.5 percent, lowering the government’s interest on its gigantic debt—a sum that will overtake the defense budget and Medicare this year. Given the fiscal projections and the staggering amount of new debt that they imply, one cannot rule out that servicing the debt will cost much more than these folks are projecting.
The U.S. is in the middle of a presidential campaign, and these matters are hardly being discussed at all. Neither party seems to have them at the top of their agenda. Congress, which acts as if there is no tomorrow, is more interested in playing war games than in setting the U.S. back on the course of fiscal and monetary sanity.
