When you think of a household budget, you probably consider how much money you can spend based on your available income during a certain period of time. President Biden’s 2024 “budget” is less an exercise in matching income with expenditures and more an exercise of seeing how big he can grow the government until the entire house of cards comes crashing down.
This would be dangerous at any point in time. It is more so given the current financial backdrop.
Not only are we already contending with $31 trillion in national debt, with rising interest rates, but the proposal flies in the face of every measure the Federal Reserve is currently taking to try to return the economy to some semblance of normalcy.
The Federal Reserve is desperate to slow demand in its meek effort to control inflation. What would help the Fed out would be the government slowing its spending. Not only would this directly help cool the economy, but some austerity on the government’s part would signal to consumers that they might want to pull back on their spending as well.
Instead, the Biden administration wants Congress to keep on spending like drunken sailors (no disrespect meant to drunken sailors). Biden is effectively telling Jerome Powell and the rest of the Fed, “Too bad, suckers,” offering no help or austerity, but rather pushing a larger government.
On top of a government unwilling to help on the spending side, the deficit spending is coming at a substantially higher cost than in recent history. Over most of the past 15 years, the cost of financing was suppressed artificially by Fed policy, allowing the government the chance to spend with ultra-low financing costs. With the Fed’s rate hikes to date — and more projected in the near future — the cost of financing for any government overspending has increased exponentially.
This means that any deficit spending you see on paper is going to cost a heck of a lot more over time. For fiscal year 2024, it’s nearly $2 trillion extra that will have to be financed at these higher rates.
President Biden is also not offering any help to the Fed to fight inflation with fiscal policy that would boost the supply of energy, labor, housing, or any other major area that is currently undersupplied and driving inflation.
So, while Biden offers no help to boost supply or curtail demand, the Fed will continue doing the only thing it can do — raise interest rates again. And while being economically oblivious on all the aforementioned topics, with his actions and inactions putting more pressure on the Fed to raise rates and destroy demand, the president and his team are still estimating a substantial boost in revenue.
In addition to the economic unicorns and rainbows that this budget represents, President Biden also is proposing undoing certain Trump-era tax cuts. While the uninformed like to talk about how these tax cuts caused deficits, they didn’t. Revenue increased in the years following the cuts and has continued to increase (with the exception of 2020’s turning off a third of the economy) as they have been left in place.
The historical problem was spending, and that’s what led to a nearly $1 trillion deficit in FY 2019, the last “normalized” year pre-COVID policy distortions.
But instead of normalizing and returning us to pre-COVID spending levels, Biden is proposing spending that is a whopping 55% higher than that last pre-COVID year! And on a deficit basis, his proposed deficit is nearly 90% higher than that nearly trillion-dollar deficit in FY 2019.
Comparing today to the insane COVID emergency spending years is also lunacy. But the president, without any emergency measures, wants to spend nearly $7 trillion, an amount that exceeds either FY 2020 or FY 2021 with that “emergency” spending.
Who wants to keep financing trillions of dollars in government deficits? We know some of the biggest foreign holders of U.S. government debt, like China, have been shrinking their holdings, not desiring more. That means that over time, the likely buyer for the U.S. government debt will again be the Fed, that same dangerous monetary “theory” that has ushered in historic inflation and destroyed the purchasing power of your hard-earned dollars. And the U.S. financial system will accelerate toward its destruction.
The Fed should stand up and tell the government, “Enough!” The Republicans should, for once, actually show that they care about fiscal conservatism and work to roll back spending to even 2019’s high levels.
I am not optimistic of either happening. So do what you can to preserve your wealth, because just about everyone in or affiliated with government is working hard to destroy it, and the budget puts that in plain sight.
Carol Roth’s new book, “You Will Own Nothing” (out 7/11), is available for pre-order now.