March 14, 2018 –
Have we not learned any lessons from the horrors of the Great Recession from a decade ago? Apparently not.
You might recall the collapse of a global investment bank with $400 billion in assets, and 85 years of storied success and deep roots with every big Wall Street bank.
Today is the 10th anniversary of the collapse of the Bear Stearns bubble during the Obama Administration and the launch of the worst fiscal crisis since the 1930s.
Afterward, Congress enacted Dodd-Frank financial reforms and the Troubled Asset Relief Program (TARP) to approve $700 million in bonds to bail out the banks and resurrect the economy.
Democrats and Republicans are hurting America’s future.
Should another crisis occur, it’s increasingly clear that the federal government will not be able again to bail out any institutions as a result of the annual $1-trillion budget deficits.
Unnecessary spending increases the annual deficits, which exacerbate the massive federal debt which is growing by the second:
At the start of 2017, federal agencies owned trillions of dollars of the debt
(Frightening figures are listed by The Balance).
- Social Security (Social Security Trust Fund and Federal Disability Insurance Trust Fund) – $2.801 trillion
- Office of Personnel Management Retirement – $888 billion
- Military Retirement Fund – $670 billion
- Medicare (Federal Hospital Insurance Trust Fund, Federal Supplementary Medical Insurance Trust Fund) – $294 billion
- All other retirement funds – $304 billion
- Cash on hand to fund federal government operations – $580 billion
Holders of the public debt
- Foreign – $6.004 trillion
- Federal Reserve – $2.465 trillion
- Mutual funds – $1.671 trillion
- State and local government, including their pension funds – $905 billion
- Private pension funds – $553 billion
- Banks – $663 billion
- Insurance companies – $347 billion
- U.S. Savings Bonds – $166 billion
- Other (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors) – $1.662 trillion
Again, other nations own more than $6 trillion in U.S. Treasurys.
Yes, the money actually comes from foreigners, and the U.S. has little likelihood of easily borrowing more money to ease threats from the next fiscal crisis.
These IOUs constitute more than 45 percent of the gross domestic product. In 10 years, the IOUs will comprise more than 60 percent of the GDP.
Foreign central banks do this to support their monetary systems because the dollar is still the world’s primary currency.
But U.S. government bonds are no longer considered a premium because of the weak dollar and high federal debt.
Higher interest rates
To offset the fiscal risk, foreign investors are likely to insist on getting higher interest rates before buying more U.S. Treasuries.
But if America pays higher interest rates, this will kill the U.S. economy as it increases the threat of massive tax increases and draconian budget cuts with a return to corporate debt and mortgage defaults.
Historically, no nation has ever survived such fiscal dysfunction without implementing severe austere measures or borrowing money.
Despite their denials, many Republicans love pork spending just as much as their political opponents, the politicians they like to label as tax-and-spend Democrats.
Politicians aren’t willing to trim the fat and balance the federal budget, which is now about $21 trillion.
Democrats favor income redistribution. Meantime, entitlements and interest payments devour two-thirds of tax revenue.
Five percent of working-age Americans draw Social Security disability payments. That’s twice the rate of three decades ago.
At the behest of Democrats, millions of Americans choose to get handouts: Food stamps, Medicaid and other entitlements.
But Republicans in welfare-dependent states favor entitlement spending to dole out benefits, too, in order to get re-elected.
Republicans complained when they learned former Secretary of State Rex Tillerson hired fewer employees to save $31 million annually.
Many Republicans also oppose the 2018 Trump budget and tariff policy designed to produce strategic aluminum and steel to secure the national defense, balance the nation’s trade, and to reduce the federal red ink to continue grow GDP.
You might recall last year when both sides of the aisle in Congress ignored the presidential budget proposal that would have balanced the federal budget in 10 years.
Conservative Republicans cite the prospect of a trade war. But they obfuscate the facts – we’re already in trade wars.
Consider China: In 2017, the U.S. had a $375-billion trade deficit with China which has cheated and manipulated its currency. Its theft of intellectual property has totaled $600 billion.
Meantime, another $300 billion was approved by Democrats and Republicans in the 2018 budget crisis.
Democrat and Republican leaders in Congress show little wisdom and courage to implement better policy. Unless they do, the nation’s fiscal situation will deteriorate beyond repair.
From the Coach’s Corner, here are more public-policy articles.
Good judgment comes from experience, and a lot of that comes from bad judgment.