Monday, January 23, 2017

What Do You Do When The Chickens Finally Do Come Home To Roost?

'Where do you want us all to sit?'
Ever wonder where such descriptive idioms come from?

You would think that it would come from a farmer who was well-acquainted with the ways of barnyard chickens. You have to believe that when they do come back to roost at night, there is a fair amount of noise and cackling and general filth that has to be cleaned up on a regular basis.

The specific idiom as commonly stated today got its start with Robert Southey's poem 'The Curse of Kehama' in 1810:

"Curses are like young chickens: they always come home to roost."

Well, when it comes to federal budgeting policy, 'multiple past poor budget decisions' are like those same 'curses'. And they are coming home to roost right now right before our very eyes.

First: Here's a list of all the ways you can choose to pay for federal spending:
  1. Taxes
  2. Borrowing
That is it. When a dollar leaves Washington DC to pay for any federal program from defense to Social Security to Mohair price supports (yes, there really is such a thing for Mohair farmers in Texas), it comes from either your taxes paid every week, month and year OR from bonds issued to foreign sovereign nations, corporations, foundations or (mostly) wealthy individuals domestic and abroad.

There is no Tinker Bell pixie fairy stardust anyone can turn to to pay for anything. Those are the only two options.

Second: In order to reduce our current budget deficits (which has to be done first anyway) and then reduce our $20 trillion national debt, here are the only ways you can achieve those goals as well:
  1. Raise your taxes
  2. Cut spending
  3. Allow more inflation to pay off debt with less valuable dollars in the future
Choose your chicken. Or your poison, depending on your perspective.

Borrowing more money over the past 40 years has always been the pressure safety valve to which less-then-principled elected officials almost always resorted instead of making the very difficult decisions as to raise taxes to pay for new programs or cut spending on existing programs to pay for any new program.

When the federal national debt is 33% of GDP as it was just as recently as 20 years ago, the adverse consequences of adding more debt are not as dangerous as when national debt is approaching 75-80% of GDP as it is today.

When it hits 100% of GDP, the use of more national federal debt really becomes very problematic. If you don't think so, ask any rational economist: 'Why not just go to 200% of GDP? 300%? 500%?'

No sane person would answer in the affirmative.

The Trump Administration has floated the idea of reducing federal spending by over $10 trillion over the next 10 years to the collective gasp of naysayers. We will talk more about this as it develops but since 2001, at least, every federal policy decision has been towards increasing deficit-spending and debt by passing more tax cuts AND more federal spending.

2 of the easiest and most popular things for any Congressman, Senator or President to do.

Just to set the parameters for your brain to be able to consume and process all that is about to come at you like a firehose: consider the following example before you cast off the possibility of reducing federal spending by $10.7 trillion over the next 10 years:
The federal budget is about $4 trillion now. Assume in 10 years it will grow to $6.5 trillion under current growth estimates which is what CBO says it will be.
That is about $53 trillion or so of collective accumulated federal spending expected to go out the door over the next decade.
A $10 trillion 'reduction' from that gross amount is about 19% from the total amount.
But instead of federal spending being $6.5 trillion in 2027, taking these somewhat urgent steps now would lower baseline spending so that federal spending in 2027 would 'only' be, say, $6 trillion, not $6.5 trillion. 
It just wouldn't be as much as some people would like it.
It is either cut spending now or add another $10 trillion to the $20 trillion debt we now have which would be 120% of GDP in 2027.
And that might be all she they say.
This is the price of inaction on controlling federal spending from 2002 to 2017. You will note that covers Presidents W, Obama, and both Republican AND Democrat control of Congress and the Senate.

Chickens really don't care what they do when they come home to roost for the night. Or the week. Or the decade.

Neither does debt. It has to be paid regardless of who is in power.

Debt rules the roost. We have to do something dramatic to arrest it.


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