The party of fiscal austerity has raised the US national debt to $40-trillion.
This year alone the U.S. is expected to have to borrow $2 trillion.
Half of that is to pay off the debt on the other $38 trillion it already borrowed.
I’m no expert, but it seems to me that this is a downward slide.
In the time it takes me to write one sentence, the US dept rises by a million dollars.
You’d think that if my father was a Rhodes scholar specializing in Economics, studied at Cambridge in the UK, and worked for the gov for decades as an Economist, that I would know something about the subject.
I don’t.
I’m an abysmal zero in economics.
But I can read, and absorb. And what I’m reading makes me very angry.
At least $12.3 trillion (30%) of this total was acquired during the 5 yrs and 7 months Trump has been in office.
Life as we know it is about to change, says Julia Taylor Kennedy, EVP and director of publications at the Center for Talent Innovation.
The US is buying back its own debt, because no one else wants it.
The US is borrowing more, collecting less, and having to offer investors a higher return to hold its debt.
The US has to offer a higher return to get investors:
Instead of the Fed printing new currency to buy the debt, what is happening is that the Fed is issuing more debt to buy our debt. This will cause inflation to soar. It was tried in the WW2 period, from 1942 to 1951, when spending exploded and there were no buyers of debt.
Here is a comparison with an economy – Canada - that is not going heavily into debt.
Canada’s stock market is up over the US by more than 16 points.
The US cost of borrowing is up by almost one full point.
American inflation is also up by almost a full point over Canada’s.
How is this going to play out in the future? It will get worse. Trump’s tariffs are a disaster that are pushing former friends into developing their own (non-American) alliances, and the relatively untaxed oligarchy has weakened the tax base.
Trump’s hair-brained treasury secretary (title from Robert Reich) said essentially “We’ll just buy our own debt. This will guarantee that interest rates won’t rise that much, because the second they rise, we’ll just keep buying all the debt.”
The Gov took emergency action with the Bond Market, to double the buy-back sizes of long-duration debt. Bessent’s 30-year Treasury yields have been pushed to their highest levels in two decades. This is only a band-aid solution, that will get Trump through the mid-terms. It will disguise the fact that this crash comes from Trump’s polices: the failed tariffs, the Iran war, the end of taxation on rich folks…
Guess who will pay?
All the Americans.
Inflation after WW2 jumped up to 18%.
And today, in real terms, the debt is ten times what is what in WW2.
We would get inflation far worse than 18%.
The US is getting more and more desperate, and is having to step in at more and more frequent rates.
Our dollars could be devalued in a flash.
Who gains?
Not you or I.
An increasing portion of our nation’s budget — and your tax dollar — is dedicated to paying interest on this growing debt. Reich: “That’s money we don’t spend on schools, healthcare, roads and bridges, and social safety nets. We’ll soon be paying more in interest on the federal debt each year than we spend annually on Medicare.”
About 70 percent of the payments on the debt are made to people within America. That is, we pay the interest to ourselves.
And of that the biggest chunk — nearly half — is held by mutual funds, pension funds, insurance companies, and banks.
And who owns them?
People at the top.
“The richest one percent of U.S. households hold about 35.6 percent of all financial assets — shares of stock, corporate bonds, and Treasury bills — so it’s safe to assume they hold at least a third of all Treasury bills.”
Back in The Day, the wealthy actually paid taxes that covered the debt. The tax rate on wealth was over 90%.
Today, thanks to Trump, it’s around 24%.
Many of the wealthiest people pay no taxes at all, because taxes are charged against income, and they make sure they have no income. They just get forgivable loans from their companies.
This lower tax rate for the wealthy has been Republican policy for years. Republican tax cuts have reduced government revenues by $10.6 trillion.
Without the Bush and Trump tax cuts, we would have a budget surplus.
And of course, those tax reductions go to the wealthy.
Who also then receive payments that taxpayers have to make on the debt that these reductions incur.
The rich are saying:
We’re not paying our share – you have to.
We pay less, and you have to pay more, and we then take a slice of what you have to pay.
Fewer pennies in the piggybank from us, you poor folks pay more pennies, and BTW we own the piggybank.
It’s a brutal confirmation of the truth: If you have money, the money will work for you and you won’t need to work for money.
Your share of the debt is about $120,000, and it is increasing for you at a rate of $181/day.
Here is the cycle: Republicans cause the economy to smash to pieces, Democrats fix it. Republicans break it again.
Let me add, as a calming agent, that Keynesian economist Paul Krugman does not think that we will suffer a broad economic crisis brought on by investors’ loss of faith that the heavily indebted U.S. government will fail to pay what it owes.
He is against the use of a potential debt crisis to demand fiscal austerity - the kind that delayed a full recovery from the global financial crisis right to the end of the Obama administration, not to mention demanding cuts to Medicare and Social Security.
He notes that the “debt scold” commentators went strangely silent once Trump took office the first time. Somehow massive revenue-losing tax cuts that further enriched the already wealthy didn’t alarm them as much as fiscal stimulus aimed at fighting mass unemployment.
Krugman forecasts that if the Democrats take office, all of a sudden, the deficit will become an urgent matter that Democrats have to address, the subject of endless media coverage and fake concern from Republicans. Democratic plans for programs such as health care will be met once again with “But how are you going to pay for it?”
He says that Democrats should by all means push for tax hikes on high incomes, close loopholes exploited by multinational corporations, strengthen IRS enforcement, and more.
Krugman advises that Democrats “must not let themselves be intimidated by dire warnings about an imminent debt crisis. These warnings were totally wrong 15 years ago, and will still be wrong in 2029 even if interest rates remain relatively high.”
So we do not need to cap our ambition for social programs, but we do need to get a grip on the debt. As Federal Reserve Governor Jerome Powell says, “It will not end well if we don’t do something fairly soon.”
Trump is just shifting the deck chairs around on the Titanic.
We need to avoid the iceberg.
Thank you for following Barry’s Substack, focusing on the meaning behind the headlines. A regular summary of a topical book will provide more depth to enable full subscribers to stay ahead of the conversation.
In the coming weeks we will look at WHAT IF THE PRESIDENT IS AN IDIOT – Trump, power and the death of serious politics – How a reality show became a presidency.
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