Congress has passed the Inflation Reduction Act. President Biden says this is a success story, in part because it will reduce the deficit by $305 billion over the next decade. IRA mainly reduces the deficit by raising taxes and regulating drug prices; the act increases federal spending and subsidies by nearly half a trillion dollars over this period.

The budget reconciliation process has been used again to increase government spending and taxes, increase federal subsidies, and expand regulatory powers. Before we break out the champagne, it is time for some straight talk about the nation’s debt crisis. Legislation such as the Inflation Reduction Act will do little to change the nation’s long-term debt trajectory.

(3) comments

Kahuna

Where was all this pearl clutching when the GOP rammed through tax cuts for the 1%? Where was it when TrumpCo added 8 trillion dollars to the national debt in just 4 years? Funny how the GOP only worries about the deficit and debt when they're not holding the reins.

phxnative54

Kahuna: [thumbup]EXACTLY[thumbup]

ronzim

There is really not much of interest here, just the same old talking points kept in the cupboard for when the PUBS are not in power. There is, of course, no national debt crisis for America---- yet. Incurring debt responsibly involves a couple of things we should look at.

First, there is the balance sheet of the borrowing agent. When your balance sheet (assets minus liabilities) reaches zero, you have no further assents to borrow against. Although America’s debt is large, our assets are far greater than our debt. According to the FEDS latest Z-1 report, America has a net equity of over $100T. That is to say that all our debts minus all our liabilities leaves a quite large positive balance. This includes the debt of the federal government but does not include the value of farms and ranches.

Second, if you have no assets to borrow against and insufficient cash with which to pay your debts, you are insolvent. The USA cannot ever become insolvent because virtually all our debt is denominated in U.S. dollars, a currency over which we have full control. Bear in mind that the federal government is unlike any other borrower in this regard because it has the power to print money and inflate its way out of debt. Moreover, the U.S. dollar remains the transactional currency of the world because of its stability and openness to trade, capital flows, strong property rights, and the rule of law. As a result, the depth and liquidity of U.S. financial markets is unmatched, and there is a large supply of extremely safe dollar-denominated assets. Although the USD has declined in its share of global financial reserves, and may continue to do so, it still accounts for nearly 60% of those reserves.

So, the paradox here it that the U.S. can continue to borrow if its balance sheet grows sufficiently as the asset base against which to borrow and national income grows sufficiently to service the debt. That however must not happen because perpetual economic growth cannot possibly be sustained because such growth will deplete global resources and be fueled by fossil fuels which is destroying the planet as I write. Regrettably, the Law of Cumulative Growth stipulates that a mere 2% perpetual growth rate for just 1,000 years requires a GDP almost 400,000,000 times the present level. If, however, such unsustainable growth is not realized, then how are jobs to be found for the ever-growing population? See the problem?

From lordabbott.com’s renowned Financial Insights, “There is always a price to pay. But in our view, there is no reason to believe aggressive monetary and fiscal stimulus threaten to undermine the U.S. dollar’s standing as the world’s reserve currency—and the underlying financial strength of the most powerful nation in the world.”

Those are the facts. Now let us turn to opinion. This author wishes to dismantle the most effective social programs in history as a means of dealing with our debt. To do so would crash national demand by over a trillion dollars per year and plunge millions into poverty. That is not to mention the drastic economic consequences at the state level. I prefer that we raise government revenues to the level required to pay for these extremely popular and needed programs. That means more taxes at the high end of the income spectrum and on big businesses as well. In microcosm, we see in Jackson, MI, the consequences of long-term refusal to raise taxes to replace a worn-out water system. We foolishly continue to do the same thing on the macro level regarding our debt.

Welcome to the discussion.

Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
PLEASE TURN OFF YOUR CAPS LOCK.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.