Posted on 08/05/2019 10:09:49 AM PDT by SeekAndFind
“This is a tipping point now. If we don’t address it in this window, in this presidential debate, we’re not going to deal with it.” Those are the words of former South Carolina governor and U.S. Congressman from South Carolina, Mark Sanford. Sanford is talking about federal debt.
But if one didn’t know better, and if one weren’t familiar with the issues of importance to Sanford, it would be easy to speculate that the South Carolinian who plans to take on Donald Trump for the Republican presidential nomination was talking about global warming. The way that Sanford references a “tipping point” that will soon lead to crisis if not dealt with in the here and now sounds eerily like lefties talking about global warming.
Sanford isn’t alone. Conservative economist Dan Mitchell, though usually rather relaxed and jovial, turns alarmist when the subject is budget deficits. As he put it in a recent post, “we’re on a path to fiscal crisis.” Worse, according to Mitchell, is that “there's zero chance that today's crop of politicians will enact” what he deems sensible reform. Mitchell concludes that “We'll probably have to wait until a crisis occurs. At which point it may be too late" for the U.S. to not morph into Greece in a fiscal sense. Substitute in an unwillingness on the part of “today’s crop of politicians” to address climate change and global warming, and it’s easy to see how similar left and right are in approach. Though they have different fears, they talk about what alarms them in remarkably similar fashion.
In each instance, the extraordinarily worried ignore market signals that represent the accumulated knowledge of many, and substitute in what they believe and purport to know individually. There lies the problem. Smart as some scientists are, and smart as some economists and politicians are, they’ll never know more than incredibly deep markets that reflect information compiled feverishly, all day and every day, around the world.
Applied to the warmists, they argue with extraordinary certainty that we’ve reached a point of no return, and that our failure to see what they claim scientists see means it may be too late when crisis of the environmental variety strikes. In particular, they claim that the world’s coastal cities face ruin thanks to rising sea levels that are set to put them under water. Of course the problem with such a view is that 44% of the world’s population lives in coastal cities, and the number is rising. The migration reflects rising economic opportunity in coastal locales; the opportunity an effect of copious investment.
Warmists, and high IQ scientists, might wonder why so many people, why billions of people choose to live in locales that will soon be under water, why investors direct trillions toward those same cities that don't have much time thanks to the world's collective inaction, but they do just that. Though it’s possible that not a single one of the migrants (past and present) has an IQ that measures up to the intelligence of scientists certain about looming Armageddon, 44% of the world’s population surely knows exponentially more about where the world is going than thousands of scientists. So they go to where investment flows, and by extension where the opportunity is. Regardless of one’s view of global warming and its future implications, market signals suggest that the science crowd has aggressively overstated the eventual impact of inaction.
It’s not different with those fearful about deficits. They too deeply believe we’re at the point of no return, that our failure to recognize what they purport to see clearly means that we’re on a path to debt-driven crisis. Global warming alarmism has met its match. Much as warmists find comfort in their certitude given the hysteria expressed by scientists, deficit worriers attain similar sustenance from pessimistic economists and politicians. The pessimists say deficits have us in crisis mode, they often point to books like This Time Is Different to support their negative view of the world, so it’s a certainty that they see what we plainly don’t. The problem is that market signals tell a different story.
Lest readers forget, markets for government debt are some of the deepest in the world. And while it’s possible that individuals like Sanford and Mitchell are individually smarter than every Treasury trader and investor, the collective knowledge of those traders and investors vastly exceeds their knowledge. Both have been predicting catastrophe of the debt variety for quite some time. If only markets agreed with them.
Indeed, while economists and politicians routinely predict looming “crisis” related to debt that can’t be paid off due to allegedly insufficient federal revenues, market signals suggest something else. Specifically, they indicate that federal revenues aren’t just too high right now, but that they’ll be way too high in the future.
How we know this has to do with the fact that markets continue to price optimistically the “tomorrow” that pessimists have been telling us is very bleak. Indeed, while the yield on the 10-year Treasury was 11% in 1980 when the federal deficit was $900 billion, the yield in 2019 despite a $22 trillion deficit (one that leaves out future unfunded liabilities) is just a little over 2%. On the 30-Year? A little over 2.5%.
None of what’s written is meant to excuse federal spending. Not at all. Federal spending is the economy-sapping process whereby politicians mis-allocate precious resources that could otherwise be directed to higher, market-disciplined uses by Jeff Bezos, Phil Knight and Fred Smith. The economic loss that results from government spending is sickening to contemplate.
At the same time, it’s worth pointing out what is true: deficits don’t matter. When conservatives focus on them they’re handing the argument to the left. They’re agreeing that there’s a revenue problem, only they're agreeing to the wrong kind. Yes there is a revenue problem: federal revenues are way too high, and market signals suggest they’re going higher. Deficits run up at low interest rates are a consequence of the latter.
Markets plainly aren’t fearful of revenue shortfalls, and they’re clearly not pricing in a looming “crisis” if we fail to listen to those fearful of deficits. The only way a “crisis” might reveal itself is if, in response to all the fear mongering among deficit alarmists, politicians arrogate to themselves even more of what we produce in order to pay down what investors clearly view as easy to pay down. Translated, debt is a consequence of immense economic productivity. Not a driver of it. Crisis would be an embrace of socialism to pay down the debt, not the run-up of debt itself.
In short, the only way “crisis” of the environmental or debt variety could intrude on us is if we do what scientists, economists and politicians are telling us to do now, which is act now. Smarter we’ll be if we avoid acting on the views of very smart people possessing very limited knowledge in favor of immense market knowledge. Crucial here is that markets are telling us there’s nothing to worry about. Whom do you the reader trust?
The truth of the matter is that 20 years ago all of us would have said that the current amount of debt would have caused an economic apocalypse by now. Surely, there is a limit of how much can be withstood, but nobody really knows where that line is. As a political strategy, harping on the deficit is a loser. It ends with a hapless wuss like Paul Ryan throwing grandma off a cliff.
I stopped worrying about the debt and deficits when I realized that it wouldn’t be our country much longer.
The problem is interest PAYMENTS on the debt as part of the budget. This isn’t addressed anywhere in the article and is one of the bigger issues.
The article is nonsense. The debt is a big problem and needs to be dealt with. Comparing it to the global warming hoax is just stupid, regardless of whether you agree with the article or not. Neither conservative side in the debt debate are using the debt as an argument to expand their power.
Surely, there is a limit of how much [national debt] can be withstood, but nobody really knows where that line is.
Once the annual interest paid on the national debt
exceeds GDP, the national annual income, the death spiral begins. In other words, if you can’t pay the interest on the money you owe, much less the money itself, the jig is up.
“The article is nonsense.” What you said and for those reasons. Someday interest rates are going to rise. That’s the tipping point. And the powermongers will *still* probably get away with the resulting chaos.
As long as the Petro Dollar stands it can continue.
If the Petro Dollar falls it wouldn’t matter if our deficits were merely 1990s levels, the whole thing will quickly collapse.
Nobody will notice being cheated out their part of $22 trillion?
As a bank depositor, I know who’s getting screwed with 2% interest and 5% inflation on the stuff I buy.
Debasement of the currency gets noticed big time, eventually.
If everybody agrees to pay only 2% interest, that’s all I’ll get.
But you’ll find I don’t work very hard.
My money is getting spent.
“Socialism is fine, until you run out of other people’s money.”
In a few years, a Chinese central bank official may decide China has too many bucks, and a few weeks later Wal-Marts will be mainly empty, except for food products.
European central banks might insist on repayment of dollar denominated loans as a percentage of US domestic tax revenue.
EU law may limit exposure of its nationals and institutions to US financial promiscuity.
Sellers of houses will reserve the right to buy back their house at a price determined by the selling price and the interest paid by the buyer, compounded.
In January 1929 the US was booming.
In early 1933, you couldn’t get money out of the bank.
Change can happen quickly and quite unexpectedly.
In 1950, Detroit was a very prosperous city.
This is a very interesting analogy.
I was listening to some old tapes that are now podcasts. From a strong Christian perspective they discuss many social and ecclesiastical issues, history...the easy chair tapes if anyone is interested.
The dire warnings of the generally excellent godly and intellectual men IN THE 1970s indeed sound like the global warming themes. I have heard them all my life. They seem to have some merit. Can we really just increase our deficit forever and never pay a price?
But in actual reality we are thriving economically and it seems to be sustainable. I have no real explanation but, reality trumps theory.
No, the deficits are real.
As long as the rest of the world is willing to buy our treasuries the debt can get larger with little impact on us. The instant they say enough we will be in deep trouble. On the other hand there is not much we can do about it at this point.
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