Debt is still killing us, and President Trump's "big, beautiful bill" isn't touching it

 

To begin, let's listen to Victor Davis Hanson discuss why debt is such a critical issue, and might yet bring down not just the US economy, but the world economy.  Take eight minutes to watch this video.  It's worth your time.

With Mr. Hanson's warnings in mind, consider the bond market, where our debt crisis is playing out right now.  The deficit is funded by bonds - Treasury "securities" . . . which don't look too secure right now.

The prepandemic era, when too much savings chased too few bonds, is over. Governments everywhere must pay up, and big budget deficits are more dangerous.

The trend is global, but the U.S. is an especially big piece of the story because of annual deficits likely to top $2 trillion on the way to $3 trillion, and the potential erosion of the dollar’s reserve status.

. . .

The federal shortfall topped 6% of GDP last year, and under the budget plan approved by House Republicans early this week (but before final amendments), is expected to top 7% for a decade, according to independent estimates. That would be higher than any other sustained stretch in U.S. history, and more than almost any other advanced economy. Because of the U.S.’s size, this has an outsize global impact. Before 2023, it accounted for half of advanced economies’ deficits, according to the International Monetary Fund. From 2023 through 2030, it will be two-thirds.

Meanwhile, the U.S.’s “exorbitant privilege” as issuer of the world’s reserve currency may be eroding. Since early April, the dollar has fallen as yields rose, the opposite of the normal pattern.

. . .

Moody’s Ratings’ decision last Friday to strip the U.S. of its last triple-A debt rating told us nothing we didn’t already know. The U.S. is a fiscal train wreck, which we also knew in 2023, when Joe Biden was president, Fitch Ratings downgraded the U.S. and the 10-year bond yield touched 5%.

There's more at the link.

Next, Charles Hugh Smith explains just what the debt (and bond) crisis means for each of us as citizens and residents of the USA, in stark financial terms.  First, the total public debt as a percentage of gross domestic product:

Next, entitlement programs (Social Security and Medicare) as a percentage of the US budget:

And finally, how entitlement spending will determine growth in future US government expenditure:

He writes:

Apologists love to attribute the debt to inflation or "growth," but that's misdirection. As a percentage of the nation's GDP (gross domestic product), the debt has risen 4-fold since president Reagan shepherded Social Security reforms in the early 1980s, and doubled as a percentage of GDP since 2007, before the Federal Reserve bailed out the status quo with hyper-financialization.

Here is a pie chart of federal spending. Social Security, Medicare and Medicaid are 44%. Toss in the other mandatory spending--a big chunk of which is interest paid on federal debt--and there's not much left to cut. The reality is there is no way to slow the runaway debt train without tackling open-ended retirement / healthcare programs.

The vast majority of projected growth in federal spending stems from these programs and the interest paid on funds borrowed to fund them. Unfortunately, these facts don't disappear because we don't like them.

. . .

The passengers on the Titanic arguing with each other can't stop the ship from sinking by "winning the argument." Silencing those willing to discuss the issues factually doesn't actually make the factual realities go away.

Again, more at the link.

So, the crushing burden of our national debt is crushing the bond market, which in turn is making it more difficult for the Treasury to fund our ever-increasing government expenditure, which means that we're spending more and more money we don't have to increase a deficit that's already far too great to ever be paid off.  Get the picture?

This isn't a Republican or a Democratic problem, except in the sense that both parties have contributed to the situation getting this bad.  They're both equally to blame.  However, it's now grown to such an extent that this is a national problem, directly and immediately affecting the financial situation of every individual in the USA.  Those who've been relying on government programs (e.g. Social Security, Medicare and others) to fund their retirement are probably going to be sorely disappointed, because those programs will shortly be unaffordable in their present form.

Will our politicians have the guts to do something about it?  I somehow doubt it, based on their past performance.  That means we're all going to have to batten down the hatches, make sure we've put away emergency needs as best we can, and brace ourselves for impact.

There is no alternative any more.  This is out of control.

Peter