Federal Government Kabuki Theater?

VIA SBINSIDER| September 29th, 2023

SaddleBrooke residents who pay attention to politics have seen this movie before. The House, when controlled by Republicans, with a Democrat President has a penchant for trying to force the President’s party to accept some marginal spending cuts in the budget. It is axiomatic that Democrats are the party of big government and Republicans the party of government too, just a little less than the Democrats.

The Republicans know that the payments that matter to the voters, Social Security and Medicare\Medicaid are NEVER going to stop, shutdown or not. And of course the military and all “essential services” will be funded. Members of Congress will get paid. The only folks who get hurt are Federal employees who go without pay and when the inevitable resolution is reached, they get back pay and are made whole.

What this fight is about

Congress loves to pass Continuing Resolutions which is a mechanism to fund government without really doing their jobs; actually voting for 12 separate appropriations bills that fund all the aspects of government that are not on auto-pilot spending. This cycle, the Republicans are holding out for separate votes to put on record which Republican members actually believe in less government or not.

Long Term US Debt

But the larger picture cannot be overlooked. Since 2000, the Federal annual deficit with the accumulated debt (money borrowed to keep spending going) has exploded. When Bill Clinton left office, the Federal debt was $5 trillion. Bush II cut taxes and spent trillions on the invasions of Afghanistan and Iraq and the debt hit $10 trillion. Obama inherited a mess and by the time he finished his term the debt was $20 trillion, the biggest spender ever. Trump was no slacker either, ending his 4 years with another $10 trillion to make the total about $30 trillion. Biden, not to be outdone by Obama or Trump, is doing his best to increase spending, getting almost $7 trillion in new programs in his first two years.

It is estimated that all Federal taxes would have to be doubled to balance the current budget and curtail borrowing-clearly something that is not going to happen.

In the 2022 budget, interest on the debt crossed a Rubicon of a sort. Over $1 trillion was allocated just to pay the interest on the total debt. The debt amount plus the Federal Reserve raising interest rates jumped that number. Just as recently as 2018, “only” $300 billion was allocated for net interest.

Where does it End?

The current fight will be resolved but no politician is willing to touch the real drivers of our Federal spending, which is the 65% or so of auto-spending that includes the favorites of all of us over 65-Social Security and Medicare. As long as the rest of the world is willing to buy our debt and we in turn, buy theirs’s, the game of fiat money goes on. For nearly a decade, the US was able to get away with a low inflation rate despite the increasing debt, but post COVID, the normal economic parameters of overspending have returned with inflation crippling the purchasing power of the majority of Americans and the Federal Reserve being forced to raise rates which is the standard remedy.