Deficits: Where Does It End?

The deficit hawks are always there, worrying about deficits as far as the eye can see. And they are right. Sooner or later the bill will come due.

Here's a piece featuring Fed Chairman Jerome Powell worrying about how the Fed can fight the next recession when interest rates are already at all time lows. Well, it turns out that he'll just print money, like the last time. But whatabout the budget?

“Putting the federal budget on a sustainable path when the economy is strong would help ensure that policy makers have the space to use fiscal policy to assist in stabilizing the economy during a downturn,” Powell told the House Financial Services Committee.

Yes, Yes. Of course. Let's Do Something about the deficit and solve all our problems. We could, you know. Because we did it before. See my "Federal Debt Analysis" and this chart.

See what's going on? In World War II our politicians shot the federal debt up to 120 percent of GDP to fight the Nazis and the Japs. Then, for the next 35 years until 1980 they brought the federal debt down to about 30 percent of GDP.

Look what happened then. Our politicians, led by Ronald Reagan, pushed the federal debt up to 60 percent of GDP by the end of the 1990-91 recession.

Then we had the mother of all financial crashes, 1929 excepted, in 2008. And our politicians ran the federal debt up to 100 percent of GDP.

So you tell me. What is different about now compared to the 35 years after WWII?

Well, all I suggest is that, back in the day, the ruling class all agreed -- nod, nod, wink, wink -- to haul the debt down from the wartime peak at 120 percent of GDP. No talking out of school, chaps, we just do it.

But then the Dems did the Great Society in the 1960s and failed to curb it when the data showed it was a failure, as documented by Charles Murray in Losing Ground.

So chaps like Ronald Reagan said: OK, if you Dems aren't going to curb your failed programs we aren't going to play green-eyeshade accountants over taxes. We are just going to cut tax rates and let her roll. Hey, the spending programs all benefit your Dem voters anyway; it's your job to look after them.

And that has been the rule ever since. When Dems get in they up taxes a bit and spending a lot. When GOPs get in they cut taxes a chunk and increase spending a bit.

President Trump has done nothing except continue that policy. Only now the federal debt, instead of 30 percent of GDP in 1980, is over 100 percent of GDP.

So, sooner or later, something will have to give. But what?

OK. So what gives? Well, roughly speaking 25 percent of the federal budget is defense, 25 percent is health care as in Medicare and Medicaid, 25 percent is Pensions including Social Security, and the rest is up for grabs, except for interest on the debt which right now is at about 10 percent of the federal budget.

Right now, nobody is willing to cry Uncle. Old men won't let anyone touch their Social Security. Old women and daughters of old women won't let anyone touch their Medicare. Defense? Maybe. Welfare? Maybe. The "Remainder" that includes interest on the debt? Well, that's the money that the educated Gentry feeds on in grants and deep-state sinecures.

So you can see that nothing will happen until the pips begin to squeak.

And you can be sure that whatever happens the old geezers like me will demand to keep the benefits we paid for and the deep state will demand its grants and sinecures.

So the guy that will get hurt will be that fellow behind the tree.

The only optimistic thought is that the ruling class will want to solve the problem without a total economic meltdown because if there is a true economic meltdown then their power as a ruling class might come under revolutionary challenge.

And we wouldn't want that would we?

But, there is a problem. Look at Nancy Pelosi. I look at Nancy Pelosi and I don't see a full deck of cards. I see someone blundering around in a strange land that Daddy never told her about.

And that could be a problem.