Cassandra, the lady, cautioned her brother Troy that the wooden animal outside the wall of Troy was full of Greek warriors in Greek mythology. No single questioned her. The horses was brought into the town by the Trojans. Catastrophe ensued.
The national president’s rising debt has had many Cassandras. For centuries they’ve been predicting that the repayments continued growth may lead to disaster. Obviously, no one in Washington believes them.
Congress keeps passing gap costs that increase the amount of loan. It does n’t matter which party controls Congress, both yawn when the Cassandras issue their warnings.
In the just-ended fiscal year, the federal government – Democrats in control of the House, Democrats the Senate – spent$ 1.83 trillion more than it took in. That brought Uncle Sam’s accumulated debt to around$ 35 trillion.
If the nation had a gross domestic product in the neighborhood of$ 75 trillion, or even$ 50 trillion, the lips of the Debt Cassandras would be sealed. A sizeable market may result in more taxes than enough to allow the government to give its interest payments and possibly even lower the primary.
Alas, the US GDP is simply$ 25 trillion.
Some experts say a government-debt-to-GDP ratios above 60 % begins to raise red flags. Some say 77 %. Uncle Sam’s amount is above 130 %. In other words, simply counting the debt held by the government leaves out debts that one portion of the government owes another, the ratio is about 100 %.
By 2034, the public’s projected bill under current rules will increase to 125 %. If Kamala Harris is elected, the nonpartisan Committee for a Responsible Federal Budget projects a 133 % increase in GDP by 2034 and a 142 % increase if Donald Trump wins.
Throw away the difference between the two, there’s bounce place in these quotations. Both applicants are making promises about tax breaks and handouts that will force the bill like jet fuel.
Since the Bill Cassandras started predicting crisis, it has been many years since crisis has not occurred. The debt-to-GDP percentage has soared past the red flags, yet investors keep buying the US Treasury’s report. The Cassandras might remain mistaken. Had a significantly higher debt-to-GDP ratio get the real danger point than experts had predicted? Sometimes there’s nothing to fret about.
Cassandra had predicted Troy would get destroyed if the Trojans had stolen Helen, the most attractive woman in the world, from her Greek father Menelaus earlier in the story. No single took that revelation really, either.
It did n’t help that 10 years elapsed before it came true. As day passed and Troy continued to live unhurt, the Trojans were lulled into confidence. Cassandra’s like a cynic! Why consider her?
The passage of time, combined with confusion about the repayments threat level, has also lulled Washington into confidence. Uncle Sam keeps borrowing and borrowing.
Sure enough, the government is also able to make its curiosity payment. However, those bills are consuming an increasing portion of the national budget. Debt-related attention now exceeds military spending. Interest payments may surpass Social Security as the national budget’s single largest line never in a long time.
Bill Cassandras point to an even more serious issue, aside from the snowballing effect of higher interest rates on the national budget. Investors in the administration’s bonds and notes will eventually be really concerned about getting the principal repaid as the bill mounts.
When that happens, need for the government’s sheet will fall. The government will need to offer significantly higher interest rates in order to buy it. These higher interest rates may only serve to further exacerbate the loan issue.
The economy will also be affected by those rates, and Congress wo n’t be able to reinvigorate it with deficit spending and tax cuts this time. Quite the opposite: The soaring interest rates on the government’s individual bill will force Congress to increase taxes and cut spending, more depressing the economy. In that dreadful situation, farm program expenditures are likely to be minimized.
Truth is, no one knows the debt-to-GDP amount that may make lenders stress. Optimists point out that Japan’s debt-to-GDP amount is 250 %. But that number is false, an study from the Federal Reserve Bank of St. Louis concludes. The balance sheets of both countries ‘ institutions show the same net duty of 119 % of GDP, taking into account things like intra-governmental payments and supply money. ( https ://www .stlouisfed .org/… )
Japan’s uniqueness comes in part because of the country’s great national savings rate and the fact that comparatively few foreigners own the country’s debt.
Governments like the US that borrow in their own money can simply write cash to repay it, according to the small minority of economists who adhere to the so-called modern economic theory. That’s correct, and the government perhaps had print money in a turmoil. But the resulting prices would be awful.
We do n’t know how long the debt can continue to grow before creditors start to panic and flee to safety. The more years go by without it taking place, the greater the desire for optimists, including almost everyone in the nation’s capital, to believe it might never take place.
We must hope that the country is caught up in their wagon and that the realists are correct. However, there is a real chance that the Bill Cassandras will turn out to be Cassandra of Troy, their prophecies being fulfilled but unheeded, leading to their fellow citizens’ great misfortune.
Previous lifelong Wall Street Journal Asia journalist and editor , Urban Lehner , is writer professor of DTN/The Progressive Farmer.
This , content,  , previously published on , March 8 , by the latter news business and then republished by Asia Times with authority, is © Copyright 2024 DTN/The Progressive Farmer. All rights reserved. Follow , Urban Lehner , on , X @urbanize ,