The NBA, China, HB2 and Political Economic Warfare

Forgive many people in North Carolina if they view the current NBA drama in China with a certain sense of schadenfreude.

They deserve it, they say.

The NBA abruptly canceled the 2017 All-Star Game scheduled to be played in Charlotte because of their opposition to H.B. 2, otherwise known as the “bathroom bill.” The NBA played up their reputation as “social warriors” willing to use their prestige, and business, to help the oppressed wherever they saw it be it public accommodations, rebel flags or confederate monuments.

The political economic warfare loss to North Carolina business was estimated to be $100 million. No one in the NBA or advocacy groups supporting genderless bathroom accommodation disagreed with political economic warfare when they did it to North Carolina. It was viewed as “just punishment” for the state of North Carolina for passing terrible unfair discriminatory legislation, even though the boycott wound up hurting thousands of hard-working middle-class folks in Charlotte who would have benefited financially from the All-Star festivities.

Houston Rockets General Manager Daryl Morey recently tweeted the following seemingly innocuous statement regarding Hong Kong and China: “Fight for freedom, stand with Hong Kong.”

Good for him. Another case of the NBA using their prestige and business to help the oppressed, only this time in Hong Kong, right?

Not so fast. The initial reaction of the NBA was to retract all public comments supporting Hong Kong freedom, including Mr. Morey’s tweet, so they would not offend the ruling communist Chinese authorities.

Golden State coach Steve Kerr said no one ever asks him about human rights oppression in China so apparently it doesn’t bother him either.

The NBA gets revenues exceeding $4 billion annually from China. Nike gets 20% of its $35 billion in revenue, or $7 billion, from China. Fear of losing money is what caused the abrupt about-face over Mr. Morey’s support of freedom in his Hong Kong tweet. Nothing else.

Should the NBA or any major corporation have qualms about doing business in a country with a long history of horrendous human rights abuses and oppression among many other transgressions such as being the major contributor in the world to carbon pollution? Should the NBA or any business stay silent when they see injustice or keep their mouth shut to protect their bottom line of profit and loss statements?

More than 65 million Chinese citizens have been executed or buried alive since the communists took control in 1949. If there ever was a country to boycott because of their suppression of freedom, China would top the list.

The people of Hong Kong enjoyed democratic freedom until the “Handover of 1997” when the UK relinquished control of Hong Kong to China. The Hong Kong freedom fighters are no different from American colonists who disagreed with the heavy-handed rule of King George III.

They want freedom, period. Hong Kong protestors are waving American flags for goodness sakes.

Is the NBA willing to be a “social warrior” for freedom around the globe? Or will they turn a blind eye to the human rights abuses of Chinese communist rule for the past 70 years to keep selling their games and jerseys to Chinese customers?

Dealing with China while ignoring their past and present oppression is not unlike British textile merchants who had no problem with American slavery as long as they could get American cotton for their products.

Maybe the Chinese dictatorial authorities will ban the NBA from China if LeBron James and Zion Williamson stand up for freedom for Hong Kong. How odd would it be if future historians look back to 2019 and say that one of the triggers that led to the dissolution of Communist China was a full-scale revolt by 330 million Chinese basketball fans once the government banned the NBA because they could not see LeBron and Zion dunk anymore.

Call it the second “shot heard around the world.” If the NBA truly stands for freedom, maybe it will happen.

(first published in North State Journal 10/16/19)

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America Should Have Many More Billionaires, Not Less

Democrat presidential candidate Sen. Bernie Sanders tweeted this out last week before he entered the hospital with a heart ailment:

“There should be no billionaires!”

He is wrong. There are close to 585 billionaires in America today. America should strive to have more billionaires in America. Many more.

China is next with 476 billionaires, despite their so-called “communist” system. India has 131 and Germany has 114; there are about 1,000 billionaires sprinkled in the other 191 countries.

What does it mean when a person is able to amass a fortune over $1 billion? It means that they probably started a ground-breaking company such as Jeff Bezos did with Amazon, usually out of nothing other than a pipe dream in their head, and then executed a business plan worldwide to provide a product or service millions and billions of people across the globe want to buy.

It doesn’t mean they “stole billions” from the poor or the oppressed. Stealing would be too much hard work; selling things people want to buy voluntarily is so much easier, and safer, than stealing.

Having billionaires succeed in America means their operational headquarters will be in America where they hire thousands of American citizens to sell and distribute their product. These people get paid by billionaires in salaries and health and retirement benefits which they use to live good lives, raise families and pay taxes on their income here in America, not elsewhere.

Mr. Sanders and Elizabeth Warren have the childish notion that rich people are taking the very food out of the mouths of poor people to stay rich as if we are living in some Dickens novel. Worse, they think that Robin Hood and Santa Claus are role models for federal budgeting and tax policy.

A billionaire cannot possibly consume $1 billion worth of food, clothing, cars or any other material good any human could possibly want in a year, a decade or a lifetime. One billion dollars would buy 333 million $3 burgers, to give one absurd example.

What do billionaires do with their money above meeting their basic human needs?

After paying their employees, they “pay” the rest of us to provide things for them and the rest of the country and world.

They buy expensive mansions at resort areas from Florida to California. Each time they buy a new 50,000-square-foot mansion, they hire contractors who then hire hundreds of construction workers who put in gold-plated porcelain sinks and air-conditioned dog houses for their favorite beloved poodle.

They buy expensive cars and jets and pay expert mechanics to keep those finely tuned machines running. Not to mention the hundreds of people who are employed by the manufacturers that make the cars and jets in the first place.

Wealthy people help make other people wealthy through their investments in new companies. They invest in companies they think will be profitable one day, although there is never a guarantee of success. Win or lose in their investments, the billionaires’ money goes to pay thousands of people in the new companies to do their jobs which provide salaries, pensions and health care coverage to an entirely new set of people outside of their main line of business.

The “worst” thing they can do is put it in a savings or checking account at the local bank. Which winds up going to help a regular person get a mortgage to buy their house or a loan to start their business.

When they die, they set up charitable foundations that build hospitals, universities, medical centers or make grants to help people in need the world over.

Rich people take money from customers all over the world and then basically “give” it to the rest of us through the free market system.

Mr. Sanders and Ms. Warren want Americans to believe they are modern-day Robin Hoods who will steal from the rich to give to the poor.

Or Santa Claus who somehow brings free toys to everyone each Christmas.

(first published in North State Journal 10/9/19)

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Can Republicans win back the African American vote?

You might be scratching your head and asking: “When did the GOP ever have the African American vote to begin with?”

The Republican Party has been joined at the hip of African American freedom since before the Civil War. The same strands of philosophical belief that underpinned Republican belief then — freedom, equality, individual responsibility and opportunity for everyone in a vibrant free-market economy — underpin the Republican Party today in clear contradistinction to the freedom-crushing socialist policies of the modern Democrat Party.

Young African Americans are unaware of the close historical tie between the Republican Party and the first civil rights movement in America for many of their ancestors. They have been taught and told that Republicans support only old rich white men and big business and could care less about justice and equal rights under the law.

A young African American student said I was the first white Republican she had ever met and talked to in-depth. She was 21 years old at the time. “I grew up in a little rural town in eastern North Carolina. I went to an almost all-black high school in Wilmington, and I am about to graduate from North Carolina A&T University. Where would I have met a white Republican to talk to about political philosophy anywhere along the way, Mr. Hill?”

Had there been no Republican Party running the country after the Civil War, Southern Democrats never would have allowed even the brief decade or so of freedom and enfranchisement for former slaves during the 19th century.

Republicans in Congress passed the 13th Amendment, which abolished slavery in 1865; the 14th Amendment, which granted full citizenship rights and protections to 4 million former slaves; and the 15th Amendment, which prevented states from denying voting rights for black citizens.

A Republican Congress overrode President Andrew Johnson’s veto of the Civil Rights Act of 1866 which eradicated laws in the South that prevented blacks from owning property, making contracts and filing lawsuits.

Former Union general and two-term Republican President Ulysses S. Grant was so committed to protecting the freedom of the former slaves he sent federal troops into states such as Louisiana and Mississippi to annihilate white supremacy groups like the KKK, White Line and White League that were not only suppressing the black vote but killing thousands of innocent citizens in the process.

Once black voters were protected at the voting booth, more than 2,000 black men were elected to serve in public elective office across the South during Reconstruction, every one of them Republican. More than 600 were elected to state legislatures. Two black U.S. senators were sent from Mississippi; 16 black congressmen were elected from other states.

Back then, Republicans could count on nearly every Southern black vote in every election and received most of the black vote until 1936. Republicans running for president today are lucky to get 5% of the black vote.

If a Republican presidential candidate could ever garner the support of 18-20% of African American voters nationwide — 6% more than Bob Dole received in 1996 — it would be impossible for a Democrat candidate to win the White House in 2020 or any year thereafter.

Younger African Americans are not as monolithically Democrat as their parents and grandparents; 15% of black voters are registered unaffiliated, most of whom are under the age of 40. They can see the failure of massive government programs, albeit well-intentioned, to help many in the African American community as well as anyone.

As a senior black Republican adviser has said, “African American voters have to like Republicans first before they will listen to any of their policies or targeted political messages. Who will be those Republicans?”

Perhaps a look back into the intertwined history of the Republican Party and African Americans will give common ground to begin those friendships and discussions. Times change and so do political preferences; nothing stays the same forever when it comes to politics in America.

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President Trump versus Elizabeth Warren 2020

(first published in North State Journal 9.25.19)

When pundits look at who is running for president, they focus on two things: poll numbers and the amount of money raised.

They should look at two other things: how many people show up at their rallies and who is the second choice of other candidates.

Joe Biden is the “safe” choice for Democrats at the moment and is leading most polls with roughly 30% of the Democrat primary vote. But no one is running to hear him give a speech. Bernie Sanders draws larger and far more enthusiastic crowds on a regular basis.

The Democratic candidate who seems to have the momentum today is Massachusetts Sen. Elizabeth Warren. She and Sanders are the second-choice candidates named in various polls.

Warren has a very professional campaign underway according to reports. She has the money to build support in the early caucus/primary states of Iowa and New Hampshire where she should do well.

If she can survive the Feb. 29 South Carolina primary, the huge “Super Tuesday” primary on March 3 presents her a golden opportunity to leapfrog Biden since 14 states will be holding primaries, including North Carolina and delegate-rich California for the first time ever.

Political people can usually feel when a candidate is resonating with voters. In December 2015, I went to a Donald Trump rally at Dorton Arena in Raleigh. I wanted to see what all the fuss was about him running for president since “everyone knew” he did not have a ghost of a chance to be the Republican nominee much less the next president of the United States.

Ten thousand other people showed up. On the Friday night before Christmas week. The only other Republican event I have ever attended with that much energy and enthusiasm was in October 1984 when President Ronald Reagan campaigned for Republicans in the state in front of 35,000 flag-waving people at Southpark Mall in Charlotte.

I told longtime political friends in Washington who were “100% sure” Jeb Bush would be the nominee they needed to go to a Trump rally to see what was going on, which they never did, of course. There were no investment bankers or country club Republicans at the Dorton Arena event. They were mostly hard-working middle-class folks who saw Trump as someone who would “shake things up” in Washington.

Elizabeth Warren might be the right person at the right time for the current state of the far more leftist Democrat Party. The national Democrat Party is far more liberal and less moderate than any time since 1972 when then-Sen. George McGovern was their nominee against President Richard Nixon.

McGovern got blown out by Nixon. Nixon won 49 states, received 61% of the popular vote and won 520 electoral votes to McGovern’s 17.

A senior Democrat expert recently said that Biden had to be the nominee or else “we are going to get blown out in North Carolina next year”. North Carolina has been trending more liberal blue than Southern Democrat blue for the past 30 years. However, North Carolina as a whole has not moved as far left as California and New York so any candidate way to the left of Biden would alienate many non-urban Democrats and independents in the state. They would either vote for Trump or stay at home, which is like giving half a vote to Trump.

Be forewarned: 2020 will not be 1972. Warren or any Democrat nominee will win California, New York and Illinois handily plus various other dependable blue states that will give them close to 200 of the 270 electoral votes needed to win the White House. President Trump will start with roughly the same number of dependable red states and electoral votes, 200, as well.

Don’t count Elizabeth Warren or any Democrat out of winning the White House in 2020. After all, 100% of the experts “just knew” Donald Trump would never “be the nominee” or “defeat Hillary Clinton” in 2016.

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Other Perfidious "Assaults on Democracy"

Critics and Democrats claim Republican leaders in the North Carolina General Assembly “assaulted democracy” when they called for two legislative veto override votes early last Wednesday morning when only 64 of the 120 House members were there to vote.

Fifty-five Republicans and nine Democrats were present on the floor. Sixty-one legislators had to be present to constitute a quorum. The Republicans won 55-9. They overrode two of Gov. Roy Cooper’s vetoes by a three-fifths majority: the budget and funds for the Medicaid transformation process now underway in the state.

The Senate has to consider both veto overrides before they can become law.

The only people who are not shocked or surprised by any news about legislative maneuvers that appear to be “underhanded” or “dishonest” are legislators or staff who have been on the receiving end of such “attempts to destroy democracy” in the past.

The main difference is that they usually happen in the dead of night, not in broad daylight for everyone to see.

Until 2011, those receiving the short end of the stick since Reconstruction were Republican legislators in the North Carolina General Assembly.

In 2005, there had been a long and contentious battle over the state lottery in North Carolina ostensibly to help provide more funds for public education in the state. The vote was close but kept falling short of the majority needed to pass the N.C. Senate which blocked passage since the House was in solid Democratic control at the time.

On Aug. 30, in the dead end of the summer, two Republican senators were on excused absences which created the opportunity for a 24-24 tie in the Senate. Democrat Senate leaders Tony Rand and Marc Basnight called senators back to Raleigh because they could count and a 24-24 tie would mean Democratic Lt. Gov. Bev Perdue could cast the deciding vote for the lottery and send it to the House and then to Democratic Gov. Mike Easley for his signature.

Was that “fair” or “foul” play back then? Or was that a shrewd use of parliamentary procedure that everyone knows about once they are sworn in?

The mother of all legislative shenanigans though took place in Congress on Oct. 30, 1987, one week after the largest percentage one-day stock market crash since the Great Depression.

Members of Congress were terrified that they had contributed to the crash by spending too much money, built up too much national debt and needed to at least try to balance the budget. The Democratic-dominated House was considering a $23 billion deficit-reduction package that included $12 billion in tax hikes that 48 Southern Democrats did not want in the bill.

The first attempt failed by a single vote, 205-206. Normally, a bill would have to “layover” for at least one legislative day before reconsideration, but Speaker Jim Wright of Texas was livid and didn’t want to wait until Oct. 31, so he started twisting arms on the floor right away.

Not only did he twist arms, but he also moved heaven, earth and Father Time forward. The Democratic leadership formally adjourned the House to end calendar day Oct. 30 “officially” around noon. They then passed a resolution declaring that a new day had begun so they could “start” the next legislative day that same afternoon, Oct. 30, at 3 p.m. complete with a new “morning” prayer.

It “magically” passed by one vote, 206-205. Fellow Texan and freshman Democrat Congressman Jim Chapman changed his vote from “Nay” to “Aye” to provide Speaker Wright his “assault on democracy” victory, as Republicans and many in the press saw it then.

We were in 401 Cannon House Office Building. The next day, we noticed a lot of painting and refurbishing going on across the hall in a spare storage room.

One week later, three of Jim Chapman’s staff moved into their new “ancillary office.”

Congressman Chapman got a new office space for his staff for changing his vote to raise $12 billion in taxes.

Were these assaults on democracy? You decide for yourself.

(first published in North State Journal 9/18/19)

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'The Resistance--- To What Exactly?"

Elderly leaders of “The Resistance” movement — think Bernie Sanders and Elizabeth Warren— grew up in the ’60s protesting the Vietnam War; talking about peace and love; burning bras to support women’s rights and demanding freedom from government oppression.

Back then, they wanted to “Resist the Establishment.” “Fight the Man.” “Question Authority.” Everywhere.

A funny thing though happened over time. These same “resisters” never seemed to want to “Fight the Man” in Washington when power was in the hands of liberal presidents they agreed with such as Bill Clinton and Barack Obama.

They wanted to give them more power, not less. Giving more power to centralized government officials as adult voters went against everything they said was wrong with America as student protesters.

We went to Ocracoke over Labor Day where I bought a T-shirt from the owner behind the counter who seemed to be about my age. She had a “RESIST” sign prominently displayed, so I had to ask if it meant the same thing to her now as during the protests of the ’60s.

“It means I resist President Trump!” she said very nicely.

“Do you resist him personally or specifically on certain policies?” I asked as politely as I could.

“He is just not a very good person,” she said.

“We have had plenty of presidents who were not ‘very good people.’ Neither Bill Clinton nor JFK was a sterling paragon of moral virtue, you know.”

“Trump is a fascist.”

“Many commentators called him Benito Mussolini when he was elected in 2016. There haven’t been any brownshirts in jackboots breaking windows and dragging people off to concentration camps on the news lately.”

“He treated children at the border terribly,” she offered as a rebuttal.

“It is tough to take care of children separately when their parents enter this country illegally. If we don’t have a nation of laws, people around the world would stop wanting to immigrate legally or illegally to America.”

“He wants to make abortion illegal,” she said.

“Abortions are still legal around the country,” I said. “There have been some restrictions on taxpayer funding for abortion, but large majorities of Americans have always opposed taxpayer-funded abortions.”

“Do you think President Trump is racist?” I asked. “Would he restore the Jim Crow laws from the Old South?”

“I think he would if he could,” the shop owner replied.

“President Trump signed a criminal justice bill in December 2018 that would free disproportionately larger numbers of black and Latino prisoners incarcerated for minor drug offenses. Why would a truly racist president ever do that?”

“Can I ask you one final question, ma’am, before I buy this nice T-shirt which I hope you sell at a profit to stay in business?”

“Sure. Go ahead.”

“How has your business been the last couple of years?”

“Despite Hurricanes Matthew and Florence, I have had the highest sales I can remember,” she blithely offered.

“If your business under Trump has been better than it ever was under Obama, why would you want to ‘resist’ that prosperity?”

“President Obama was a good president. He wanted to help people,” she argued.

“We help millions of people when we have a growing economy where everyone can find a job to support themselves and their families. Isn’t that better than having them all on government welfare?

“You are part of ‘The Resistance’ to President Trump which seems more personal in nature,” I said. “I agree with the idealism of our youth — I still don’t trust the concentration of massive amounts of power in the hands of a very few elected or appointed government officials in Washington to tell the rest of us what to do all the time.

“Wouldn’t it be nice if liberals, conservatives and independents could band together to ‘Resist the Establishment’ regardless of who is in power? Try to make our government smaller and quit spending so much money and building so much debt for our children to pay?”

She just smiled and said goodbye.

(first published in North State Journal 9/11/19)

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Inverted Yield Curves, Russian Collusion: What Next?

30-year bond yields at historic lows

Liberal cable news outlets that desperately want to get President Donald Trump removed from office any way possible have seized on the “inverted yield curve” as the next best political way to get him out of the White House.

Why use a financial term in electoral politics?

“Russian collusion” didn’t work. Impeachment is a moot point since the 2020 election is already underway. Why not jump on “inverted yield curves” to scare voters to vote against him even if hardly any know what it is?

Put very simply, an inverted yield curve happens in U.S. Treasury bond markets when long-term rates in 30-year bonds are lower than short-term rates of, say, 2-year bonds. When investors get spooked by something negative they see in economic indicators, they want to put their money in the safest possible financial instrument they can find.

When investors bid up the price of the 30-year bond for its safety, the effective stated yield on any issued bond is essentially pushed down. Such a flight to safety usually diminishes the demand for short-term bonds, which then drop in price by comparison and drives their effective interest rates up.

Short-term interest rates going up are not good for the economy either. Higher interest rates mean it costs more for businesses to borrow and invest, hurting their expansion plans or need to hire more workers — although one has to wonder how much of difference it really makes when we are in the lowest overall interest rate environment since the 1960s.

Many economists see inverted yield curves as harbingers of a recession occurring anywhere from 8 to 24 months after inversion.

In the hopeful eyes of MSNBC and CNN commentators, a bad recession will happen right when people go to the polls to vote for President Trump or Elizabeth Warren perhaps in November 2020.

Is it a “definite” indicator of a looming recession?

Ed Yardeni, a noted investment strategist, wrote in a recent newsletter that “an inverted yield curve has predicted 10 of the last 7 recessions.” He went on to say: “Inverted yield curves don’t predict recessions … They’ve tended to predict financial crises, which morphed into economy-wide credit crunches and recessions.”

There have been at least two occasions since 1960 when an inverted yield curve flashed an incorrect prediction for recession, in 1965 and 1998.

If this is a false reading of the inverted yield curve with no financial crisis in the offing, what else could be going on?

Apparently, the whole world is sending money for safekeeping in the U.S. Negative interest rates in Europe will do that to nervous investors as will unrest and tension in the Middle East, Hong Kong and China.

Inverted yield curves might not mean what they used to mean. In 1980, the yield on a 30-year bond was near 15%. In 1990, it was 9%. In times of higher interest rates, inverted yield curves meant more than they do in the flat 2% interest rate, essentially zero inflationary expectations of today.

A real estate investment executive said their investment projects were slowing down some, but not because he thinks a financial bubble-induced recession is imminent. Cost of materials is rising as are the costs of labor due to a shortage of skilled construction workers, but the main thing constricting their new investments is competition from foreign money looking for a safe harbor in America.

His investors typically have demanded 8% returns on their investments. He turned down a recent investment from a Lebanese investor who wanted only a 5% return, an amount that would undercut his longer-term partners which he was unwilling to do.

For now, America is looking like the only place where sophisticated investors the world over are paraphrasing a quote oft-attributed to Will Rogers: “I am more concerned with the return of my money than the return on my money”.

Relying on inverted yield curves as a political tool to get President Trump out of the White House might not work any better than “Russian collusion” did.

(first published in North State Journal 9/4/19)

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Looking at Diversity from Another Angle

(first published in North State Journal 8/28/19)

A young person recently brought up a question he heard during an interest meeting about joining a local church.

“What is the church doing to diversify its membership?” another young man asked. “I look around our congregation and … it is pretty white!”

The pastor answered in perhaps the best way he could: “Our church doors are open to anyone who wants to attend. We are a church of peace and spreading the Gospel, and all who want to attend are welcome.”

“Freedom of opportunity,” “freedom of choice” and “diversity” can be congruent ideals but often are very different things in practice. The ideal world is where everyone can join any church; work at any business or live in any neighborhood they choose regardless of race or socio-economic status.

However, that doesn’t mean that everyone actually wants to attend, work or live in the same places, as say, you do. The essential freedom to pursue one’s own course of happiness underlies the very definition of being “American,” regardless of outcome.

In high school, I was invited by a close friend of mine, Ronnie Dowdy, to go to church with him. Ronnie was a huge football star at Durham Jordan High School and was heavily recruited to play at Notre Dame, Ohio State, Southern Cal and Penn State among about 100 other colleges, but he ultimately signed to play for the Tar Heels at Carolina.

Durham was at the forefront of the integration movement in 1968 which is why Ronnie and I were in the first fully integrated seventh grade class in the first place. At age 12, we really didn’t understand what was going on at the time; we thought we were just playing sports, horsing around and going to class with a lot of great people, white and black, whom we grew to respect, admire and love.

I went to his church and was overwhelmed by the energy and the spirit in the worship service. The hymns were sung with abandon and the outpouring of friendship and love at his church was real and genuine.

I asked Ronnie later if he wanted to go with me to my church, a Methodist church in Durham.

“Why would black people want to go to a white church?” Ronnie said with a hearty laugh. “The services are boring; the music isn’t very good and white people just don’t look like they are having any fun in church!” he went on to observe.

He had a good point. He and his family were making their own choice to not attend a white church as were the rest of their congregation.

There are reasons beyond simple appearances or headcounts as to why African American worshipers might not want to attend predominantly white church services that have nothing to do with race. That is why the issue of mandating “diversity” is such a difficult one. No elected official can “mandate” that every facet of everyday life in America has to perfect match the population percentages of each ethnicity in the community because each individual — white, black, latino — has the freedom to make their own choices each day.

If we could mandate perfect integration of the races, then the makeup of every business, church, government office and school in Wake County would adhere to these precise percentages: 72.40% White, 19.72% Black or African American, 5.41% Hispanic or Latino, 3.38% Asian, 2.48% from other races, 1.64% from two or more races, 0.34% Native American, and 0.03% Pacific Islander.

How impossible would that be to implement?

The beauty of America is its ability to allow everyone to have their own freedom of choice regarding which house of worship they attend or what line of work they choose to do. It would be a travesty to allow any elected official to use the coercive power of government to force people to fit into predetermined slots based on race as if they are just different colored M&M’s and not human beings.

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‘When We Hit The Point Of No Return, It Will Be Too Late’

(first published in North State Journal 8/21/19)

The Treasury Department announced last week that the budget deficit for FY 2019 grew to $866.8 billion in the first 10 months of the fiscal year, up 27% from FY 2018.

Headlines across the news media trumpeted the fact that the national debt was now 106% of GDP as if it spontaneously combusted out of thin air instead of being built up over the past 20 years during the terms of Presidents Bush 43, Obama and now Trump. The blame should be placed around the neck of every Congress and U.S. Senate convened since 2001, not on the executive in the White House.

How dangerous is this 106% of GDP statistic?

Former Federal Reserve Chairman Alan Greenspan testified regularly before the House Budget Committee and the Joint Economic Committee from 1991 to 1994.

Democratic and Republican Members would ask this thorny question as if asking permission to keep spending money or cutting taxes like drunken sailors:

“Dr. Greenspan: What is the point of no return when it comes to how much national debt we can accumulate before things get really bad for the American economy?”

National debt held by the public was 43% of GDP in 1991.

He would always answer in the same dry, matter-of-fact manner. “The monetary policies of the Fed and the fiscal policies of Congress must always be focused on the long-term health of the American economy. The optimal way to reduce deficits and avoid more debt is to restrain the rate of growth in federal spending to at or below the rate of growth in the economy. Raising taxes are not the preferred way to reduce deficits but if they are part of a compromise with serious budget restraint that leads to balanced budgets, the long-term health of the economy would significantly improve instead of deteriorate over time.

“Generally, when a nation’s national debt approaches 100% of their GDP, that is when we have seen nations start to suffer in history. No one really knows what the point of no return is precisely. All I can tell you is that when we hit the point of no return, it will be too late to do anything to avoid the consequences of any fiscal irresponsibility today.”

In FY 2018, tax revenues increased a healthy 3% over 2017 tax receipts. The problem is spending. Total federal spending increased 8% over the same period of time.

Is America at the “point of no return” today with a $22 trillion national debt at 106% of GDP?

The real number to worry about is the debt held by the public, which according to CBO is 78% of GDP. Debt held by the public is “real” debt on which interest had to paid regularly in cash. The rest of the debt is considered “intra-governmental” debt such as the transfers on paper between the so-called Social Security Surplus in the past and the regular budget.

CBO does not consider such intragovernmental debt to have any real economic impact today, which is why they look at the 78% of GDP figure instead of the 106% number. The economic impact that will take place is in the future when younger workers, mostly millennials, will be asked to pay 35% more in payroll taxes to fully fund the benefits boomers will be expecting in retirement. If the millennials rebel, as they most likely will, boomer retirees will be forced to receive lower Social Security and Medicare benefits up to 30% below what they thought they would be receiving.

America may have a full-fledged generational political war before excessive debt tanks the American economy.

Unless we arrest our deficit-spending through serious budgeting restraint and entitlement program reforms, our publicly held national debt will exceed 144% of GDP by 2049 according to CBO.

Which is definitely far beyond the “point of no return” Alan Greenspan warned us about three decades ago.

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