Swamp Math: Deficits of $20.3 trillion over the 10-year budget window

FY 2033 show current policy receipts at 18.1% of GDP and spending at 25.3% of GDP. A guaranteed route to financial and political disaster.

Speaker McCarthy's Rotten Deal...

by David Stockman

If there was ever any doubt, now we know: Speaker Kevin McCarthy has straw for brains and a Twizzlers stick for a backbone. He was within perhaps a few days of breaking the iron grip of America’s fiscal doomsday machine, yet inexplicably he turned tail and threw in the towel for a mess of fiscal pottage.

We are referring, of course, to the impending moment when the US Treasury would have been forced to forgo scheduled vendor or beneficiary distributions in order to preserve incoming cash for interest payments and other priorities. That act of spending deferrals and prioritization would have obliterated the debt "default" canard once and for all, paving the way for a nascent fiscal opposition to regain control of the nation’s wretched public finances.

And there should be no doubt that we were damn close to that crystalizing moment. After all, Grandma Yellen herself forewarned just last week on Meet The Press that absent a debt ceiling increase, the Treasury Department would have to prioritize payments and leave some bills unpaid:

"And my assumption is that if the debt ceiling isn’t raised, there will be hard choices to make about what bills go unpaid," Yellen said on NBC’s "Meet the Press……."We have to pay interest and principle on outstanding debt. We also have obligations to seniors who count on Social Security, our military that expects pay, contractors who’ve provided services to the federal government, and some bills have to go unpaid…."

And, of course, that prioritization and deferral could have been easily done. Federal receipts are now running about $450 billion per month, meaning that after paying $61 billion of interest, $128 billion for Social Security, $26 billion for Veterans and $47 billion for military pay and O&M there would still be $188 billion left to cover at least 50% of everything else.

That is to say, no sweat with respect to servicing the public debt, and a lot of sweat among the constituencies that would have had payments delayed or reduced.

So, yes, the GOP has truly earned the Stupid Party sobriquet. No ifs, ands or buts about it.

Instead of spending days negotiating over the minutia of budgetary scams, tricks and slights-of-hand, which is the entirety of the McCarthy deal, they should have been demanding from the Treasury a detailed list of scheduled payments by day for the first few weeks in June. And then, in return for continued negotiations on meaningful spending cuts and reforms, demanded assurance from the White House that enough of these due bills would be temporarily stuck in the drawer (deferred), if necessary, to ensure payment of scheduled interest, Social Security, military pay and Veterans pensions.

That is to say, McCarthy had Sleepy Joe over the proverbial barrel. But instead of applying the wood to his political backside good and hard, the Speaker chose to hold Biden’s coat and help him get back up, praising the latter’s supercilious retainers as he did so.

For crying out loud. Upwards of 96% of Uncle Sam’s cash balance had been dissipated over the past year, guaranteeing that expected June collections of well more than $500 billion would not be enough to cover 100% of the scheduled due bills. Accordingly, just a couple of days of missed payments on selective items would have turned the Washington fiscal equation upside down.

The bogeyman of "debt default" would have been completely annihilated. And the legions of interest groups, businesses and individuals who suckle on the Federal teat month-in-and-month-out would have screamed to high heaven for relief, which McCarthy would have been positioned to provide to them…..at a price!

Needless to say, the "price" in question has nothing to do with the risible budgetary trivia that passes for the Speaker’s compromise deal. For instance, does the GOP think voters are actually stupid enough to buy the rescission of $28 billion of left-over Covid budget authority, which probably wouldn’t have been spent anyway, when these "saved" funds are to be recycled into FY 2024 appropriations but not counted against the ceiling?

That’s Swamp Creature math, and arrogance, too, like never before.

Even Goldman Sachs says that the budgetary impact of the deal amounts to a pure rounding error in the scheme of things:

The spending deal looks likely to reduce spending by 0.1-0.2% of GDP yoy in 2024 and 2025, compared with a baseline in which funding grows with inflation.

Here’s the point. CBO’s most recent projection shows new deficits of $20.3 trillion over the 10-year budget window—and that’s based on Rosy Scenario economics with no recession, inflation gone away and only gently rising interest rates. Throw-in even a modest dose of realism about the economics and back-out the huge tax increases and spending cuts built into the out-year baseline, which will never be permitted to actually materialize, and you have a de facto public debt of $55 trillion by the early 2030s or more than 200% of the current GDP.

What that amounts to is a long-term structural fiscal equation which is a guaranteed route to financial and political disaster. Thus, CBO’s end year numbers (FY 2033) show current policy receipts at 18.1% of GDP and spending at 25.3% of GDP.

Folks, you can’t borrow 7.3% of GDP every year from now until eternity and get away with it; and most especially not when American society is plunging into a 100 million strong baby boom retirement wave—accompanied by a shrinking work force and tax base owing to collapsing birth rates and Washington’s idiotic migrant worker internment camps at the southern border.

Stated differently, fiscal governance in Washington is totally kaput. They never pass an annual budget resolution and enforcement plan, which was taken as a sacred duty back in the day; and there are never even annual appropriations bills for the mere 25% of the budget still subject to the Congressional "power of the purse".

Instead, what occurs is a perennial string of short-term Continuing Resolutions (CRs) followed by an 11th hour, 3000 page pork-ridden "Omnibus Appropriations" bill that no one has read and which gives log-rolling (i.e. more domestic for more defense) a new definition.