Trillion Dollar Baby

Only one time in US history has the budget deficit exceeded the national GDP by 5%. Once was after WWII; however, it’s expected to happen again by 2028. What is unique about the Congressional Budget Office (CBO) announcement is budget shortfalls are not supposed to occur during economic growth periods. CNNMoney We are presently in a record bull market period, where Treasury bonds issuances and interest payments should mean we get to borrow less. Growth equals tax revenues to fund the cost of government. Not this time. Congress cut taxes so drastically for corporations and high-income earners that we ‘can’t afford’ reasonable government expenditures.

One point eight million federal employees were previously scheduled to receive pay raises next year, but the Trump administration cancelled them citing “national emergency or serious economic conditions affecting the general welfare.” He has called them “inappropriate.” CNN … I’m confused. Hasn’t he stated innumerable times that our economic strength is a result of his Administration’s deft policies? Are trillion dollar deficits becoming our new normal fiscal policy?

According to the CBO, even if tax cuts passed last year are not renewed in 2025, deficits of over 1 trillion are expected to last for decades, notwithstanding the effects that the trade wars will have on our economy, which are still unknown and unsettled. Trump may brag about low unemployment, but 1 positive economic indicator alone will not save us. We really don’t know how poor fiscal management will affect us. One thing is certain, new debt with higher yields will continue to be issued to fund the cost of government while companies use record profits and a boon in low taxes to buy back shares. This isn’t new, or a surprise to many. What is new and uncertain is whether or not servicing public debt will one day become unsustainable. If so, our sovereign credit ratings will suffer. For now, leaders of Congress seem to be resigned to ‘kicking the can down the road.’ No doubt, ratings agencies are closely analyzing US credit risk, especially in light of CBO warnings this past spring. Politicians should not pretend to be surprised if US credit worthiness suffers a downgrade at some point, and I wouldn’t trust one who is. This bull market run can’t last forever, and we will all ultimately pay for this Administration, young and old, rich or poor.