The US Federal Reserve Building is seen in Washington, DC, May 3, 2023. – The US Federal Reserve is widely expected to raise its benchmark lending rate for a 10th — and possibly final — time, as it aims to bring down inflation while preventing fresh banking concerns from spreading. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)
“Can you spot me a few billion more?” asks Uncle Sam, nervously stroking his white goatee.
The banker sitting behind the big desk across from Sam assesses the supplicant sitting there before him.
The banker notes that Sam’s shirt cuffs are looking a little frayed. And that his shoes are scuffed and worn down at the heel.
“Nevertheless,” the banker silently calculates, “Sam is probably still good for the money, just as he always says he is.”
The banker sets aside his doubts. He whips out the loan approval form and affixes his signature to it.
The banker, though worried a little, is confident that Sam will continue to do whatever he must.
Even if Sam’s fridge goes on the blink, even if his car needs four new tires, even if the roof on Sam’s house springs yet another leak and Sam has to put out yet another bucket, Sam will ignore these difficulties in favor of paying the vigorish, er, interest, on his loans.
Sam has to, He has no choice, you see.
Because that is Sam’s modus operandi now. He exists from one loan to the next.
And these are not loans to finance expansion, as successful businesses routinely take out. These are loans to cover current expenses, as unsuccessful businesses routinely try to talk banks into staking them.
Still, worry about Uncle Sam lurks in the back of the banker’s mind. How long can this go on? he wonders.
Didn’t the economist Herbert Stein famously postulate that if something can’t go on forever, then it won’t?
Yes, Sam’s probably still good for the money, but the banker is aware of the old saying, “If you owe the bank $50,000, YOU have a problem; if you owe the bank $50 million, the BANK has a problem.”
Debt, debt. debt. Debt here, there, everywhere.
There’s debt as far as the eye can behold — and beyond.
State and local governments are reckoned to be in long-term arrears in funding their pension plans by more than $1 trillion ($1,400,000,000,000).
New Jersey alone is in pension arrears by over $100 billion ($100,600,000,000), despite recent increased taxpayer payments into the plans.
Medicare’s unfunded long-term future liabilities are projected at $64.29 trillion and Social Security’s long-term future shortfalls at $47.7 trillion.
Outstanding college loans have hit $1.7 trillion and credit-card debt another $1.031 trillion.
Then there’s the national debt, It’s $32.6 trillion. Or $32.7 trillion. Or $32.8 trillion. The figures vary a bit. But, heck, what’s a few billion dollars on the far side of the decimal point?
Favoring the continued proliferation of debt are the incomprehensible numbers debt has come to involve.
If we could grasp the numbers, maybe we’d actually do something about them. But if the numbers can’t even be gasped, how can you worry about them, really? The rule is just cluck your tongue and move on.
Who can grasp how much a trillion is? Can even Elon Musk? Warren Buffett?
We are told that a trillion is a million million. That a trillion is a ten to the 12th power number. We’re told that if you took out a $1-trillion loan and paid installments of $1 million a year, it would take you 2,740 years to pay off the loan.
But does any of that really make the incomprehensible debt figures less so?
The magnitude of the debt numbers numbs the mind. How numb will our minds be when we leave trillions behind and get to quadrillions or quintillions?
Uncle Sam finagles his loans by hustling a line of securities, including Treasury bills, notes, and bonds. They’re all forms of borrowing.
Sam agrees that come the proverbial hell or high water, he’ll make the interest payments on the bucks he borrows.
That interest is a priority. Uh, no, wait: It’s more than a priority, it’s a sacrosanct obligation.
For that interest is owed not to little guys and gals, not to the lumpen masses of Deplorables, but to very important people, businesses and countries.
And the amount of interest owed is a massive sum of moolah, topping $200 billion in just one recent quarter alone.
For the money he borrows to tide him over quarter to quarter, Sam is forking over a higher and higher interest rate. And the mounting interest costs consume a bigger and bigger portion of every year’s federal budget.
So even though the interest payments crowd out appropriations for worthy purposes such as public transit, infrastructure upgrades, clean-energy research and what-have-you, the vig must be paid.
The vig must be paid precisely because of the status of the lenders it’s owed to: banks. Insurance companies, big pension plans, investment firms, mutual funds and foreign nations with flush treasuries.
We need these nations to keep floating us loans. Even China. Even China with its spy balloons, its gulag, its threats to absorb Taiwan, its labs leaking deadly viruses and its moves to make the South China Sea its private lake.
Yes, we need especially China, which not only helps us keep afloat financially but now manufactures most of the contents of our medicine cabinets.
Participating in and partaking of our national debt — that is, investing in Uncle Sam’s securities and collecting the vig thereon — is a game open strictly to high rollers. Treasury bills and such are not made available to, say, the MAGA grunts and other serfs in accessible $25 or $50 denominations.
Japan is one of our top bankers, holding $1.1 trillion of U.S. debt, 14.7 percent of the total; China is another, holding around $836 billion,11.9 percent of the total.
Meanwhile, the widely reviled national debt continues merrily along its upward course, from $5.73 trillion under Clinton, to $10.63 trillion under Bush to $19.96 trillion under Obama to $27.77 trillion under Trump to $32.6 trillion and counting under Biden.
The debt now exceeds our GDP, our national annual income.
Republicans will not hear of tax hikes to slow down the borrowing, and Democrats will not hear of spending cuts.
Republicans cling to their myth that spending can easily be cut to balance the budget, without controversy or consequence. But they are vague about precisely how the numbers work.
Since the really big spending involves Social Security, Medicare and the Pentagon, how do you significantly restrain spending without touching them?
Democrats cling to their own myth that spending can go on ad infinitum if only the rich pay their fair share of income taxes — even though the fact is that the top 1 percent already pay 40 percent of the total income taxes collected and the bottom 50 percent pay less than 3 per of the total.
And so, it looks like borrowing it’s going to be. Until . . . until . . . whenever.
The prevalent delusion seems to be that Herb Stein had it wrong — that something somehow CAN go on, even if it can’t.
Read More: America’s debt addiction (DAVID NEESE COLUMN)