Think about the worst year of your finances. Would you ever dig yourself into that same hole? Our government could. Last month, President Joe Biden released a $ 6 trillion budget proposal, twice the amount of government spending in 2008. For more comparison, Bill Clinton balanced the budget in the 1990s. Now we’re so out of balance that this year’s deficit is equivalent to a mid-1990s federal budget. Spending is out of control, and no one seems to be questioning it.
Even mainstream economists make sudden U-turns, but some are speaking up. At the start of the pandemic, Harvard economist Kenneth Rogoff said to New York Times that the deficit strategy was just beginning. “If we raise another $ 10 trillion, I wouldn’t even blink now,” he said. Well we blink, and we’re in dangerous territory of our spending habits.
Let’s call the elephant in the room: cheap money. With low bottom interest rate, we make cheap money and seriously distort the economy. Over time, this debt tsunami changes the structure of the entire economy as we jump from bailout to bailout. And because interest rates are so low, big corporations and governments can keep issuing bonds to stay afloat.
Low interest rates sound good when they encourage spending and stimulate the economy. But this strategy has the dark side of inflation, especially with regard to asset prices. We all know accommodation is too expensive, and that’s directly because of monetary policy. Consider that even before the ‘booming’ economy of 2018, 40 percent of Americans had negative net incomes and borrowed money to cover basic household needs. That number is likely to increase as long as we continue to bail out the government and all businesses.
We have a biased society that doesn’t know how to deal with its problems. And it’s global: Corporations around the world are treating their public policy issues with red ink.
We don’t need to guess what lies ahead for America. In Japan they would have the world highest debt-to-GDP ratios without any negative effects inflation or interest rates. Still, there are consequences: Japan also has a “mediocre average annual growth rate of 1% over the past three decades. “And 21 percent Japanese small and medium enterprises are zombie companies. Japan has paid off its debt heavily.
While new programs and aids may seem benevolent in the short term, will the government do twice as much as before? Probably not. In a perfect world, there would be enough money to give everyone everything they need, but that is not the reality. “The grant is supposed to be temporary. It has become a way of life… the only way of life, ”said Dion Rabouin in a stunning farewell manifesto to his daily Axios newsletter. We believe in a social safety net, in infrastructure, and in making the investments that will make America, or keep America, relevant and robust. But Washington will have to borrow trillions just to keep the lights on. Just writing a blank check for everything is not the solution to any of our problems.
This budget is not just for the people of America today. This is the next generation. We already see wealth gaps emerge and destabilize the fabric of our society. And eventually, someone – somewhere, one way or another – will have to pay this debtwhether it be in the form of inflation or interest payments that continue to swallow up an ever-increasing portion of our federal budget. Instead of paying for education, infrastructure and environmental protection, the next generation will pay interest on debt that has been spent irresponsibly.
Biden could make history as a Commander-in-Chief who has done more than any other president in history. We hope that he errs on the side of financial responsibility and thinks of “us the people” who will eventually foot the bill and live in a world plagued by economic distortions.
David Grasso is the host of Follow the Profit podcast, where he shares simple ideas for financial success and lessons learned the hard way. He is also the CEO of Bold TV, Inc, a non-profit media company dedicated to entrepreneurship and cultural empowerment.
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