So how about a devastating debt spiral to perk you up on this fine Presidents' Day?
The latest Congressional Budget Office report — with the thrilling title "The Budget and Economic Outlook: 2026 to 2036" — doesn't use the phrase "debt spiral," but Fortune's Jason Ma did on Saturday, and I'm totally stealing it. Ma wrote of a debt "tipping point" that most people aren't aware of but that could "arrive soon" with potentially devastating effects.
I think I lose readers every time I write about this stuff, and yet I persist.
Before we get to that spiral, let's set the stage. Ma noted that "publicly held debt is currently at $31 trillion and is about 100% of GDP. By fiscal year 2030, debt is expected to exceed the 106% record set after World War II, then surge to 120% by 2036." Of course, we won the war in short order, spending returned to normal, and the debt became manageable.
I think pretty much everybody reading PJ Media is at the very least vaguely aware of these current figures, but the Committee for a Responsible Federal Budget warned last week: “Later in the decade, under CBO’s baseline, the average interest rate on all federal debt will exceed nominal economic growth, which could represent the start of a debt spiral.”
"Fearing the political backlash of fiscal austerity, lawmakers often point to the prospect of robust economic growth as an alternative way to keep U.S. debt under control over the long term," Ma wrote, "But the threat of interest costs growing faster than the economy risks sending debt into escape velocity and forcing more drastic measures to prevent a crisis."
So let's talk about the reality that few people seem willing to address.
And Another Thing: Maybe people would pay more attention to these CBO reports if they gave them titles like, "Louisiana Johnson and the Spiral of Doom."
There are three ways out from under trillions and trillions in debt.
Only three.
Washington can inflate away the debt, which is the preferred method of corrupt governments throughout history. The Biden Cabal managed to knock the real value of our debt down by 20% or so in just a couple of years, and all they had to do was set the typical American's income back by years (not to mention wipe out any cash savings) to do it.
The second option is default, although it does come in two flavors. There could be an orderly default, where Washington goes to our creditors at home and abroad and says, "Look, you and I both know we can't pay back all the interest we owe you. So let's negotiate how big a haircut you're going to take while we get our finances in order." Then there's a disorderly default, where Washington just stops paying and there's a global run on the dollar, markets collapse, and savings evaporate. The first flavor is almost too foul for even a small taste. The second melts your face off.
The third option is to grow out, way out, and this is Trump's preference. Mine, too, for that matter. Washington needs to do everything in its power to spur growth — primarily deregulation and tax cuts — while Congress keeps spending growth smaller (even just slightly smaller) than GDP growth. If the bond markets saw Congress rein in spending growth, those long-term interest rates would come down fairly quickly.
Until that happens, however, the bond markets must — must — price in the risk of inflation and/or default. What that means in, no matter how low the Fed cuts short-term rates, those long-term rates will remain stubbornly high.
And Another Thing: Come to think of it, there is a fourth option, and that's send the military into foreign countries to steal what we can't pay for. That's a bad way, mmkay?
That isn't the Fed's fault, and we can't blame Jerome Powell for this one. It's a simple economic reality. Or as Bill Clinton advisor James Carville put it more than 30 years ago, when a nasty bond market reaction put the kibosh on Clinton's grander spending plans, "I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody."
Everybody, it seems, but those reckless fools in Congress who hold the nation's purse strings — and all our fates — in their hands.
Recommended: Excuse Me, but California Dems Stole How Much Again?
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