Washington, DC is going through its annual budget charade. The US Congress is no longer capable of approving individual budgets and appropriations. Instead, a handful of leaders make omnibus deals among themselves and demand the people’s representatives rubber-stamp the result. Otherwise, the government shuts down.
It’s an idiotic way to govern, or, more accurately, to not govern. And the results speak for themselves. Federal outlays are expected to run $6.5 trillion this year. Last year’s deficit — in the absence of a hot war, health pandemic, or financial crisis — ran some $1.7 trillion, the third highest in US history. Interest payments on accumulated debt are forecast to be an incredible $1.1 trillion, about 17 percent of outlays, the highest ever for which data is available. The national debt held by the public (excluding the fake Social Security to Treasury transfer) currently is $27 trillion, more than 100 percent of GDP and climbing.
The latter is almost certain to accelerate in coming years. Interest payments essentially come off the top and, in practice, cannot be cut. Congress would have to either repudiate federal debt or budget responsibly.
The former would solve the problem and prevent its recurrence by stripping Washington of any pretense of creditworthiness. But doing so would impoverish investors and trigger a financial crisis, likely to be seen as at least modest negatives in Washington. Even less practical is reducing annual deficits and accumulated debt, an idea that produces gales of laughter in the nation’s capital. The problem is simple but profound: the Congressional Budget Office figures that in 2034 outlays will run 24.1 percent of GDP, while revenues will be just 17.9 percent of GDP. Balancing the budget requires closing that huge gap. Alas, neither the president nor Congress has the will to make any hard decisions, let alone the slate of hard choices required to avoid fiscal Armageddon.
As the Federal Reserve unwinds its essentially zero interest “quantitative easing” policy, Uncle Sam is now paying higher rates. Moreover, Washington must refinance maturing debt. Explained CBO: “The projected increase in 2024 occurs primarily because the average interest rate that the Treasury pays on its debt is higher this year and is expected to rise further as maturing securities are refinanced at rates that exceed those that prevailed when the securities were issued.” As a result, interest costs are rising faster than any other federal program and have doubled since 2020. This year, interest payments on the debt will exceed the cost of every federal program other than Social Security.
