Whenever anyone starts griping about government debt, I tell them they’re right. But I also tell that debt is just a symptom and that the real problem is an ever-growing burden of government spending.
Moreover, I warn them that fixating on red ink is a tactical mistake because proponents of bigger government can respond by stating, “I agree with you, so let’s raise taxes.”
That would be a huge mistake since all the evidence, from the United States and elsewhere, shows that higher taxes will merely give Washington an excuse to further increase the spending burden and we’ll have even more debt when the dust settles.
Have set the the parameters of today’s discussion, now let’s look at two visuals. First, here’s the CRFB estimate of future debt (as a share of GDP) based on Trump’s “big, beautiful bill” that Republicans are considering.
Second, here’s a headline from CNBC about the U.S. losing its AAA credit rating.
So what should we think about these developments?
In the grand scheme of things, we can ignore the Moody’s downgrade. With regards to the safety and soundness of the federal government’s debt, the credit rating agencies are giving us a lagging indicator.
In other words, Moody’s isn’t telling the financial markets anything that isn’t common knowledge.
However, the chart is something to worry about. I’ve assumed for a long time that the United States would be one of the last dominoes to fall when a debt crisis happens.
But we’ve had fiscally irresponsible presidents for the entire 21st century. And then politicians used the pandemic as an excuse for a spending binge.
And now entitlement spending is exploding because the baby boomers are retiring and Social Security, Medicare, and Medicaid expenditures are growing rapidly.
The bottom line is that America is careening toward a fiscal crisis. Democrats want to step on the gas and most Republicans are happy to go along for the ride.
This won’t end well.
