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The new House speaker promises a debt commission. We don’t need one. We need the brains and the nerve to downsize government before it turns the American way of life into Venezuelan misery.
House Speaker Mike Johnson (R-La.) said earlier this week that we “must prevent” a government shutdown because “that would do even more harm to our economy.” And with that, Johnson consigned Americans to the ultimate government shutdown of debt, inflation, and insolvency.
Johnson is planning to give Democrats everything they want with nothing in return. No spending cuts. No action on the border. Not even a real debate over those things. Instead, he is pushing for ... a debt commission.
Why are our leaders so shortsighted?
Here is what’s happening. Since Republican leaders agreed to raise the debt ceiling in June, the national debt has increased $2.3 trillion. In just that six-month period, the debt accumulation rivals the pace of debt accrued during the COVID shutdown in 2020. The difference, of course, is that official unemployment today is below 4%.
With interest rates skyrocketing as the Treasury seeks to incentivize buyers to purchase federal bonds, the United States has entered a vicious cycle of higher interest rates on ever-increasing debt. Interest on debt has now permanently surpassed the cost of our gargantuan military and is rivaling the cost of Medicare.
It’s game over. This is the meaning of the ultimate shutdown.
It's not just the $2 trillion annual deficits we are facing over the next year and every year thereafter. In the next 12 months, $8.2 trillion of existing government debt will be maturing. That $8.2 trillion should be accounted for as new debt because it will need to be serviced at substantially higher rates than when it was first accrued. The only thing that has been holding this Ponzi scheme together has been the ability of the Federal Reserve to turn a profit for the Treasury by earning money on bonds through reverse repurchase agreements. But with interest rates so high, the Fed is losing $700 million a day with operating losses topping $100 billion over the past year.
Since Johnson has taken a shutdown off the table, we are locked into another two budget cycles of spending that will push interest payments higher than $1 trillion annually.
A lot of people think the solution is for the Federal Reserve’s 12-member Federal Open Market Committee simply to reduce interest rates. The problem is the sheer volume of Treasuries they would need to sell to service the debt in itself will drive up yields. There is simply too much volume for the number of buyers on the market.
It’s already happening. The government last Thursday attempted to sell $24 billion worth of 30-year debt. Buyers were few and far between, so the U.S. Treasury was compelled to offload a quarter of the total offering to lenders of last resort.
Why? China, Japan, and Russia have all divested from U.S. Treasuries — something we’ve not seen in previous debt crises. China has cut its holdings in U.S. Treasuries by 40%, the lowest level in a generation.
Imagine what is about to happen when the velocity of national debt issuance expands exponentially as the U.S. Treasury plans to offload another $1.6 trillion in six months. With $8.2 trillion of maturing debt, what sort of favors will Treasury Secretary Janet Yellen offer Xi Jinping to get him to underwrite our debt? No wonder she said this week, while genuflecting before China’s dictator, that we need “healthy economic relations” with the communist regime.
What all this means is that Yellen will either need to offer insanely high interest on Treasuries, or the Fed will just print money — or both.
At that point, it’s no longer a government balance sheet problem. It’s a you problem.
Thanks to government shenanigans, you will no longer be able to afford to live. This is why, along with the $33.7 trillion in federal debt, we have a record $17.29 trillion in household debt, $12.14 trillion in mortgages (nearly double the pre-housing-crash peak in 2007), and a shocking $1.6 trillion in auto loans. Americans are putting the tab of the debt-driven inflation on the credit card because they can’t afford the cost of living, so credit card debt has now surged past $1 trillion.
Still feel good about Mike Johnson “averting a shutdown” by locking in the current unsustainable spending, not to mention the border invasion, which is costing us more than $450 billion?
Since Johnson has taken a shutdown off the table, there appears to be no way to save our economy. It means we are locked into another two budget cycles of spending, at a minimum, that will push interest payments to more than $1 trillion annually.
The federal government takes in about $4.8 trillion in revenue a year. Of that, $3 trillion is chewed up on Social Security, Medicare, and Medicaid. Toss in the military and veterans, along with civilian federal workforce and military veterans’ pensions, and that brings outlays to around $4.4 trillion. Add to that another $1.2 trillion a year for interest payments, and all of a sudden, we’re forced to service $800 billion in new debt before we get to a single dollar of non-defense discretionary spending.
In short, we could abolish the State Department, Justice Department, Homeland Security, and all those domestic nanny-state departments we hate, and thanks to the new interest payments, we would still be worse off than we were pre-COVID. Which was pretty bad. And it’s clear the Republicans have no intention of abolishing any federal department — so let that inflation rip away in perpetuity!
Johnson promises a debt commission. We don’t need one. I just summed up the problem in a paragraph. We need the brains and the nerve to downsize government before it ruins the American way of life.There’s only one legitimate leverage point to harness in pursuit of that goal. Sadly, Republicans would rather the debt cancer kill our way of life than perform even a modicum of surgery. Allah forbid we have a temporary partial shutdown for a week or two when we could face a life of Venezuelan-style economic collapse instead.
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Blaze Podcast Host
Daniel Horowitz is the host of “Conservative Review with Daniel Horowitz” and a senior editor for Blaze News.