Category: Spending Crisis

MLLG

Watch For The Minsky Moment

George Noga

Watch For The Minsky Moment

Has the great American spending crisis already begun?

GEORGE NOGA

Feb 4, 2024

I have been writing frequently about the spending crisis because it is inevitable and fundamentally will transform these United States in ways difficult to imagine. It will be like the Great Depression in that Americans will forever date everything from before or after the crisis. This post addresses whether or not the crisis has begun.

concrete statues near wall

The crisis could begin suddenly when the market for Treasury securities evaporates and buyers no longer are willing to buy government debt under acceptable terms. It could be triggered by an unexpected downgrade of US government debt by one of the rating agencies. Or it may be triggered by a seemingly innocuous event such as a Bloomberg article that goes viral and results in panic selling of Treasury bonds.

Alternatively, the crisis could begin slowly and gradually. Although there would be abundant signs, they would be ignored or lost in mountains of data. Inevitably, there also would be conflicting signs. No bell will ring when the crisis begins.

The Minsky Moment

The Minsky Moment, named for economist Hyman Minsky, is that precise tipping point when unsustainable activity results in a sudden decline in market sentiment and leads to panic selling and to a rapid and unpreventable market collapse. It is an abrupt bursting of a bubble. It is an unmistakable demarcation such that nothing is the same after the Minsky Moment as it was before. A recent example of a Minsky Moment is the 2008 bankruptcy of Lehman Brothers which burst the housing bubble.

Whether the spending crisis begins suddenly or gradually, there will come a Minsky Moment. Once it occurs, it will be too late to protect your assets.

Has the Spending Crisis Begun?

Although the Minsky Moment for the spending crisis has not yet occurred, that does not mean the crisis has not begun. As noted supra, the crisis could begin gradually, with the Minsky Moment coming later. Following are some indicia that suggest the crisis already may have started.

  • Moody’s, a major credit rating agency, recently put US Treasury securities on “negative credit watch”, which means a downgrade may be imminent. Recall that Treasury debt already has been downgraded once before.
  • Demand at recent auctions of Treasury debt has been tepid; in November, the Treasury was unable to sell all the bonds it offered due to insufficient demand.
  • A recent headline in the WSJ blared “Foreigners Lose Interest in Buying US Treasury Debt”. Foreign ownership of Treasuries is down 35% in recent years.
  • Demand for longer-dated Treasuries (the most risky) has been so weak that Treasury was forced to shift to offering more shorter-duration debt instead.
  • Interest on the debt last FY was 16% of revenue; this FY it will balloon to 22% of revenue on its way to oblivion. What happens when 25%, 33% or 50% of all government revenue must be used to pay interest on the debt?
  • There has been a geometric increase in the number of news reports about the debt spiral in recent months. Search “Minsky Moment” online.

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What is the Key Takeaway?

The key takeaway from all this is that the time will come (sooner rather than later) when America will be forced to cut spending by at least $1 trillion in today’s dollars. If we don’t drastically cut spending voluntarily, the market will do it for us. The most likely scenario is as follows:

  • The US will continue present spending levels. There will be occasional sops to cut spending but they will be inconsequential political window dressing.
  • Both the debt ratio and the share of revenue required to service debt will continue to skyrocket, reaching obscene levels.
  • The Minsky Moment likely will come when either: (1) the market for government debt implodes; (2) Treasuries are downgraded to near junk levels; or (3) some highly credible person or organization says the jig is up.
  • At first, the Fed will print money to sustain the obscene spending, but that will result in hyperinflation.
  • With absolutely no other choices remaining, spending will be slashed, including cuts of 30% to Social Security, Medicare, Medicaid and all other government programs. Also new taxes such as a VAT and/or carbon tax will be enacted.
  • America will be forever transformed and we will experience a lost generation.

Who will be the last person on Earth to buy US government debt? Watch for the Minsky Moment and remember that if something cannot go on forever, it won’t!

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© 2024 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

The Trillion Dollar Question

George Noga

The Trillion Dollar Question 

– It’s readers’ turn to decide how to reduce the deficit

GEORGE NOGA

Jan 28, 2024

Over the years, I have presented many different and (hopefully) compelling ways to put the US spending crisis into proper perspective. Now it is your turn. Following is the government spending for the fiscal year ended September 30, 2023. These are real numbers – actual dollars out the door – not projections or estimates.

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  • Health care programs¹ . . . . . . . . . . . . . . $1.6 trillion
  • Social Security . . . . . . . . . . . . . . . . . . . . . $1.5 trillion
  • Discretionary non-defense . . . . . . . . . . $1.0 trillion
  • Defense . . . . . . . . . . . . . . . . . . . . . . . . . . $0.8 trillion
  • Interest on the national debt . . . . . . . . $0.7 trillion
  • Other mandatory spending² . . . . . . . . $0.5 trillion
  • Total federal government spending . . $6.1 trillion

Other relevant numbers are GDP $26.2 trillion, government debt $33.7 trillion and the debt to GDP ratio 129%. Let’s stipulate the goal is to freeze the debt ratio at its present level of 129%. This is the dead minimum necessary to prevent a death spiral.

If GDP grows this FY by 3% to $27.0 trillion, the maximum debt must be no more than $34.8 trillion (34.8/27.0=129%). This means the total debt cannot increase by more than $1.1 trillion (33.7+1.1=34.8). Since the annual deficit is running at $1.7 trillion, that means $0.6 trillion of spending must be cut (1.7-1.1=0.6). We aren’t finished.

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Interest on the debt will increase this year by $0.2 trillion due to higher rates and more borrowing. Social Security and health care expenses are ballooning due to adverse demographics. To cut to the chase, immediate spending cuts of one trillion dollars ($1,000,000,000,000.00) are needed simply to freeze the ratio at 129%. Moreover, this does not solve our debt problem, it merely keeps it from getting worse.

It’s Your Turn; Where Would You Cut $1 Trillion?

So, where would you cut $1 trillion? You can’t cut interest on the debt; that would result in default. Do you cut defense spending given the dangerous geopolitical situation? Do you cut pensions and the VA? If you don’t cut Social Security or Medicare (political suicide), that leaves only discretionary non defense spending (cost of running the government) which coincidentally was $1 trillion last fiscal year.

So, it is up to you. Where do you cut one trillion dollars immediately? The old canard of cutting waste, fraud and abuse won’t fly – it is endemic and impossible to cut due to the nature of government. Raising taxes is a possibility and plausibly could be one (small) part of the solution. However, higher taxes stifle economic growth, which reduces tax collections, which increases the deficit, which leads to more tax hikes and results in a vicious circle. The problem is not low taxes, it is out of control spending.

If We Don’t Cut Voluntarily, Markets Will Do It For Us

If we do not make the spending cuts needed to freeze the debt ratio, the markets will do it for us by blowing up the market for US Treasury securities, i.e. buyers no longer would be willing to finance America’s deficit because they believe (correctly) that they would not be repaid in full.³ There are only three possibilities.

  1. The Fed prints money (most likely scenario) which leads to hyperinflation
  2. Draconian tax increases (carbon, VAT) which make the US economy a basket case
  3. The US defaults on its debt

Foreign holdings of US debt have plunged by 35% from ten years ago, In November, there were not enough buyers and Treasury was unable to sell all the debt it wanted. Who will be the last person on Earth to buy US government bonds?

One way or another, the spending cuts are inevitable and America will be forever changed. Imagine the political and societal chaos that would result from drastic cuts to Social Security, Medicare and all other government programs. America will suffer a lost generation and become a European style no-growth welfare state where people lead lives of quiet desperation.

If something cannot go on forever, it won’t!

1. Includes Medicare, Medicaid, CHIP (Children’s Health) and ACA (Obamacare)
2. Includes government pensions, VA and veterans benefits
3. This already has begun. Some buyers are refusing to buy 30-year bonds and have forced the Treasury to shorten the duration of the bonds it issues.
© 2024 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com
MLLG

Cabbages, Kings, VATs and IRAs

George Noga

Uncle Sam is coming for your IRA

GEORGE NOGA – MAY 7, 2023

My last post (April 30) about the spending crisis showed the government would need $900B in 2023 to stabilize the Debt/GDP ratio at around 100%. The national debt held by the public is $25T, soon to be $30T. Not uncoincidentally, US retirement assets including IRAs, 401(k)s and pensions total $30T – more about this infra.

When the spending crisis attains critical mass in a few years, the government, facing the mother of all crises, will desperately seek honeypots; after all, why let a ginormous crisis go to waste? After racking my brain, I can identify only three honeypots big enough to matter; these are retirement assets, a carbon tax and a VAT.

Raising Tax Rates and Cutting Costs Won’t Work

First, we must eliminate the two most obvious honeypots – higher marginal income tax rates and less spending; neither is big enough . The income tax is organically incapable of raising more revenue because of Hauser’s Law, which states that income tax revenue, regardless of tax rates, always is 18% of GDP – marginally higher or lower during booms and busts. Whether tax rates are 92% as they were in the 1950s, or 28% as they were under President Reagan, the government collects the same 18% of GDP. Note: Hauser’s Law works because people adjust their behavior as tax rates change.

It is possible to cut spending, but not near enough to come close to freezing the debt ratio. Reductions of $900B are needed and the only way to get there by cutting costs is to savage Social Security, Medicare and most other government programs. To realize savings of $900B would require 30% across-the-board cuts in all programs including Social Security and Medicare, excepting only defense and interest on the debt.

Value Added Tax (VAT)

For a VAT to raise $900B, the rate would have to be around 20% and would cost $7,000 per year per household. Since lower-income households likely would be exempt, the effective cost would exceed $10,000 per year per affected household. Politicians have proposed VATs before. Paul Ryan’s Roadmap contained a VAT as did Herman Cain’s 9-9-9 plan; one of those nines was a VAT – and those were putatively conservative Republicans. If you think a VAT is farfetched, think again. Politicians like VATs because they are stealth taxes, embedded in everything we buy.

Carbon Tax

A carbon tax, part of a cap and trade scheme, comes with political advantages. It also is a stealth tax, passed on to consumers by utility companies. It can be touted as a way to combat global warming and it can be targeted at higher income cohorts for class warfare. A carbon tax can start out small and easily be ramped up.

IRAs, 401(k)s and Pensions

The biggest (by far) honeypot is pension assets. The Secure Act got the camel’s nose under the tent by requiring annuities be offered in all retirement plans – a precursor to mandatory annuitization, whereby government seizes IRAs in exchange for a government annuity. Think this is farfetched? Poland, Hungary, Ireland, Bulgaria and France, through one artifice or another, have seized money from pension assets. In the end, Uncle Sam, like Willy Sutton, must go where the money is; that’s your IRA.

Putting it All Together

As the nation is rent amidst the chaos and anarchy of the spending crisis, Americans will be of a mindset to go along with any government actions offering hope. Likely there will be a combination of actions such as listed below. Remember, it must amount to at least $7,000 for every household, every year with no ending point.

  • Enact a VAT at a modest teaser rate and then rapidly jack up the rate
  • Attack pension assets, such as requiring a portion be invested in government bonds, capping the size of accounts and forced annuitization
  • Pass a (cap and trade) carbon tax that will cause power bills to skyrocket
  • Make small, mostly cosmetic and back-end loaded, spending cuts
  • Raise Social Security age to 70, convert Medicare to a premium support model

Sadly, it won’t be enough; at best, it buys us a few more years. Even if we find the $900B to freeze the ratio, we have not solved the problem; we have merely stopped it from getting worse. Moreover, the added taxes will gravely harm economic growth; we will be caught up in a vicious circle. America will become a no-growth European-style welfare state; our country will be forever changed and our children and children’s children will be relegated to lives of quiet desperation.

 

Thanks for reading More Liberty – Less Government!

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

Spending Crisis Truths

George Noga

                                                                   

The crisis is not economic; it is moral

Spending Crisis Truths

GEORGE NOGA – APR 30, 2023

Much has been written about America’s debt crisis, including by me. I prefer to call it a spending crisis because, absent runaway spending, the deficits and debt would disappear. This post strips away all the superfluous background noise and distills all you need to know about the spending crisis into a few unassailable truths.

Truth #1: America Passed the Point of No Return

When Titanic first hit the iceberg, passengers barely noticed. The ship remained afloat for 4 more hours, but its fate was sealed; there was no way to unhit the iceberg. So it is with the spending crisis. America hit the Debt/GDP iceberg sometime during the past few years when the ratio neared 100% on its way to the moon. As with Titanic, life may appear normal for a while, perhaps even for years; but our fate is sealed. During the thousands of years governments have borrowed money, none with a debt ratio above 100% have recovered without calamity and a lost generation.

Truth #2: Few Understand the Seriousness of the Problem

Only an infinitesimal segment of Americans know what is coming. The spending crisis will not hit home until it affects their daily lives. We are far past possible bromides such as a balanced budget amendment or debt ceiling limitation.

Some economists suggest freezing the Debt/GDP ratio at its current level; however, they have not done the math. To freeze the ratio means debt cannot increase faster than GDP, which is forecast to grow at 2%. That means debt could increase only 2%, or no more than $500B. The CBO estimates the 2023 deficit at $1.4 trillion; meaning spending would have to be slashed $900B to limit the debt increase to $500B, i.e. to freeze the ratio. The entire budget for non-defense discretionary spending is $900B, meaning such spending would have to be cut 100%, and that is merely to freeze the ratio, not to lower it. Raising taxes could plug part of the gap, but that would hurt the economy and slow GDP growth, meaning the spending cuts then would have to be even more that $900B – a vicious circle.

Truth #3: Great Pain Inevitable

No matter what comes, the crisis is existential – to invoke a vastly overworked term. As shown supra, freezing the ratio would mean $900B in cuts (or tax increases) now. If we wait until the US no longer can borrow to finance the deficit, it will be worse by an order of magnitude. The ensuing crisis will have dire geopolitical consequences as well as likely social unrest as Social Security, Medicare and countless other government programs are scaled back or eliminated. There would be no borrowing capacity in event of a natural disaster or war. Even a debt default would not provide much relief as future spending still would have to be brought into balance.

Truth #4: Debt Limit Determined by Markets Not Congress

In the end, Congress is irrelevant. The real US debt limit is determined by markets. When there are no buyers for government debt, the jig is up. It is possible markets already have begun to speak. Foreign governments are now net sellers of US debt and high interest rates may, in part, be attributable to an added default risk premium.

Truth #5: If Something Can’t go on Forever, It Won’t

The spending crisis is a poster child for the above quote from economist Herb Stein. As shown supra, it is impossible even to freeze the ratio. That means it is destined to get worse each year until it goes into a death spiral.

Truth #6: Crisis is Moral – Not Economic

I call it a spending crisis, but at its heart it is a moral crisis. Americans chose – whether consciously or unconsciously matters not – to take from our children and our grandchildren rather than to control our spending. We refused to make tough choices, falsely believing we could buy social peace. We elected politicians who promised us the moon was made of Stilton and whose favorite exercise is kicking cans down the road. We chose – and are continuing to choose – to condemn our progeny to a dystopian Clockwork Orange future.

Worst of all, we stole from future generations, not to save America from natural disaster, world war or Armageddon, but to pay for a perpetual party, which continues unabated today even as Americans whistle past the graveyard.

© 2023 George Noga
More Liberty – Less Government, Post Office Box 916381
Longwood, FL 32791-6381, Email: mllg@cfl.rr.com

MLLG

Continuing Coverage of the Spending Crisis . . . The Spending Crisis May Already Have Begun

George Noga

To control inflation, the interest rate must be higher than the inflation rate.

Continuing Coverage of the Spending Crisis . . .

The Spending Crisis May Already Have Begun

By: George Noga – May 15, 2022

For 15 years I have warned of a crisis of spending, debt and deficits, which I call the spending crisis because its root cause is spending. At first, I cautioned about a possible crisis and in recent years, a likely crisis. Once the debt ratio blew past 90%, it became an inevitable crisis. The only remaining questions are when will the crisis begin and how will it unfold. We know the crisis will not be transient and will result in a lost generation. It will end only when all excess debt is purged and taxes and spending are brought into balance, a lengthy and tortuous process that will transform America.

I often wrote that the crisis is likely to start suddenly and unexpectedly. I have used the example of a seemingly innocuous posting on Bloomberg going viral and, by the end of the day, the market for US government debt evaporates. That may still happen, but there is another – perhaps more likely – scenario. The crisis could begin stealthily and only in hindsight will we recognize it was the beginning of the crisis. There is, in fact, a very solid basis to believe that the spending crisis may already have started.

In chaos theory, complex systems like the US economy are inherently unpredictable. Small and seemingly insignificant events can lead to profound and non-linear impacts over time. In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a system results in large differences in later states, i.e. a small change in initial conditions cascades to a cataclysmic event. Thus, the present inflation could cascade into a life-altering crisis.

The true cause of the present inflation may not be monetary policy, but fiscal policy, i.e. spending, debt and deficits. When government debt exceeds what people expect can or will be repaid, they spend in the belief everything will be more expensive in the future. This drives up the price of all goods and services. If our present inflation is indeed being driven by fiscal policy – either entirely or in significant part – it can only be fixed via fiscal policy, i.e. higher taxes and/or draconian spending cuts. Further, that means that our present inflation is indeed signaling the start of the spending crisis

There are two, and only two, possibilities. The first is for the Fed to let inflation go unchecked, either intentionally or (more likely) by taking half-measures, i.e. to raise rates too little and/or too slowly. This will result in long term inflation which is the cruelest tax of all – and leads to social unrest and political extremism. This possibility will bring about the spending crisis. Of course, 100% inflation over say 10 years would cut the deficit in half. However, even halving the deficit would not end the crisis; the US still would be running a humongous fiscal deficit and would be back at square one.

The second possibility is for the Fed to jack up interest rates to counter inflation. To get inflation under control, interest rates must exceed the inflation rate. The last time the US had high inflation, the Federal Reserve had to raise rates to 20% to control 14% inflation. Imagine what would happen now if the Fed raised rates to say 15% to control our present inflation of 10%. That would cause a severe recession that adds many trillions to the debt. Moreover, it would not prevent the spending crisis.

Let’s recap. If the present inflation continues long term, social and political cohesion will disintegrate just as it has in other countries – the Weimar Republic comes to mind. If the Fed takes drastic action to halt inflation, that leads to a crisis as shown supra. Also, remember that if inflation is being caused by fiscal policy – it can only be fixed via fiscal policy. There is no way out of this situation. Either way, it is checkmate.

Following are the Five Main Takeaways

  1. If something cannot go on forever, it won’t.
  2. To tame inflation, the interest rate must exceed the inflation rate.
  3. The crisis ends only after excess debt is purged and the budget is in balance.
  4. If inflation is caused by fiscal policy, it can be ended only via fiscal policy.
  5. At its heart, it really is a moral crisis; rather than control our spending, we chose to borrow from future generations – and for all the wrong reasons.

There is a solid basis to believe the spending crisis has begun, but we will know for certain only in hindsight. No bells will toll to announce the start of the crisis.

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Next on May 22nd: The political outlook for 2022 and 2024.
More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us
MLLG

Spending Crisis Locomotive Nearing the Abyss

George Noga

“God loves fools, drunks and the United States of America.” (Otto von Bismarck)

Spending Crisis Locomotive Nearing the Abyss

By: George Noga – February 13, 2022

The spending crisis is one of MLLG’s signature issues – along with climate change and school choice. Our last update was in our post of 2/7/21 and it is time for another. First however, we take a look back to our prior projections about the spending crisis.

Over 10 years ago I wrote a 24-page report entitled “The Crisis of Spending, Debt and Deficits“; it was printed and mailed (USPS) to our readers – which were much fewer in number back then. It is not on our website. I had not given this report any attention in many years and had nearly forgotten about it until one of our longtime readers asked for a copy. I reread the report and was flabbergasted to see how accurate it was!

Nearly 12 years ago, I projected that in 2021 GDP would be $21 trillion, public debt $26 trillion and the ratio 124%. The best data available for year-end 2021 are GDP of $23 trillion and debt of $25 trillion for a ratio of 109%. For reference, back in 2010 GDP stood at $15 trillion, debt at $9 trillion and the ratio at 60%. No one – absolutely no economists anywhere – and most certainly not the CBO – were projecting anything even remotely close to the data published by MLLG. Note: I actually published three projections; the one cited herein is the middle (or most realistic) case.

My projection was not a lucky guess. I spent hundreds of hours during the summer of 2010 while in Montana constructing a computer model of the US economy. I used that model to generate the data in the published report. I did not merely project a ratio, I built the data from the ground up. My projection was accurate because I made realistic assumptions about, inter alia, recessions, spending and taxation. Readers may decide for themselves, but my past accuracy should confer a strong presumption of present credibility about the spending crisis. As a reminder, I call it the spending crisis rather than the debt crisis because the crisis ultimately results from uncontrolled spending.

At its heart, it is not really a spending crisis – it is a moral crisis.

I again have spent many hours updating projections. Surprisingly, the 2021 (debt/GDP) ratio was better than projected in 2020 because of the stronger than expected economic recovery from the pandemic. Future debt ratios depend primarily on: (1) economic growth; (2) tax rates and collections; (3) interest rates; (4) timing, length and depth of recessions; (5) inflation; and (6) any spending blowouts such as BBB. There are many variables and uncertainties such as possible natural disasters and military conflicts.

I have run numerous projections with various combinations of economic growth, taxes, inflation, spending, interest rates and recessions. The best I now can project is that the ratio will be near 150% in 5 years and over 200% in 10 years – on its way to the moon. In later years the ratio would hit 500% and even 1,000%, but that is moot because the locomotive would go over the cliff long before the ratio reached such numbers. God may love fools, drunks and the USA, but nothing can save us from a ratio of 500%.

I call it a spending crisis, but at its heart it is not really a spending crisis; it is not really a debt crisis; it is not really a deficit crisis; it is a moral crisis! We chose – whether consciously or unconsciously matters not – to take from our children and grandchildren rather than to control our own spending. We refused to make tough choices, falsely thinking we could buy social peace. We elected politicians who promised the moon was made of Stilton. We chose, and are continuing to choose, to condemn our progeny to a lost generation in a Clockwork Orange world filled with existential threats.

Even worse, we stole from future generations – not to save America from some manmade or natural calamity – but to pay for a perpetual New Years Eve party.

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Next on February 20th – the origin and nature of government.

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MLLG Special: The Camouflaged Nexus Of . . . Climate Change, Critical Race Theory and the Spending Crisis

George Noga

There is a hidden connection among climate change, race and the spending crisis.

MLLG Special: The Camouflaged Nexus Of . . .

Climate Change, Critical Race Theory and the Spending Crisis

By: George Noga – July 18, 2021

Three mega-issues changing America are linked in ways not well understood. Climate change is regarded, including by President Biden, as an existential issue in the literal sense and not the philosophical sense of mankind’s search for meaning. The spending crisis will change America forever and Critical Race Theory has become an accepted part of pedagogy in schools, universities and workplaces throughout America.

The common denominator of these three issues is socialism along with its misanthropic stepchildren: communism, progressivism, and liberalism. In each case, unreconstructed socialists are the driving force behind the cause. They are working in tandem toward the same goal – whether or not they coordinate their efforts. They receive financing and succor from a coterie of camp followers and useful idiots including progressive groups, academia, public sector labor unions, teachers, media, government bureaucrats, NGOs, entertainment, organized religion, social media – and even sports and business.

Climate Change and Socialism

After the fall of the Berlin Wall and the collapse of communism, die-hard Marxists were homeless. They decided to pursue their goals via a back door by taking over the environmental (and later, climate change) movement. They simply cloaked their anti-capitalist agenda in green language and became watermelon environmentalists, i.e. green on the outside but red on the inside. Patrick Moore, a founder of Greenpeace, said, “Following the collapse of communism, Marxists hijacked the (climate change) movement. Their far left agenda is about socialism, not ecology or (climate).”

Critical Race Theory (“CRT”) and Socialism

Marxism is based on class conflict and the belief that workers would seize the means of production and create a utopian socialist society. However, socialist-style regimes proved dismal failures, murdering over 100 million of their own people. The human carnage and economic toll were so great even die-hard Marxists couldn’t hide from it. Moreover, Marxists came to understand workers in the USA, Western Europe, Japan and many other places never would buy into the notion of class struggle.

Just as Marxists knew they needed a back door (environmentalism and climate change) to achieve their goal, they also recognized they needed an alternative to class struggle. They decided to substitute race (and ethnic) struggle for class struggle and BINGO, Critical Race Theory was created. Masters of maskirovka, commies decided on the euphemism “equity” as their mantra. By equity they mean an end to private property and redistribution of everything according to race. There would be no individual rights, only group rights. At its core, Critical Race Theory is virulent socialism.

Spending Crisis, Modern Monetary Theory (“MMT”) and Socialism

Most groups pushing for MMT and massive spending, debt and deficits are socialist. Once again, they are seeking a back door to socialism. Progressives understand Americans will not accept socialism under normal circumstances; therefore, they must create an emergency serious enough to beguile Americans into accepting the hitherto unacceptable. Thus, we have a spending crisis that will result in horrors so frightening people will accept anything – especially if they are promised it is only temporary. The spending crisis is yet another back door to a socialist United States of America.

# # # # # # # # # # # # # # # # #

There you have it – the nexus of climate change, CRT and spending; they all represent back doors to socialism. The leaders of these movements know full well what they are doing but are few in number. They must rely on camp followers and useful idiots, i.e. clueless liberals besotted with feel-good progressive bromides and good intentions.

We must stand up to these assaults on our liberty and way of life. That requires the courage to speak the truth and to withstand the slings and arrows directed at you by elitist mobs. But courage begets courage and a majority is one person with courage.

Next on July 25th – The school choice movement in America.
More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us

Continuing Coverage of the Spending Crisis . . . Debt Ratio Above 100% – Attains Critical Mass

George Noga

The debt ratio will be 175% by the time of the US semiquincentennial in 2026

Continuing Coverage of the Spending Crisis . . .

Debt Ratio Above 100% – Attains Critical Mass

By: George Noga – February 7, 2021

The two issues we have written about for the longest time and also the most frequently are manmade climate change and the spending crisis. Ironically, the issue that is real (spending) and is certain to result in disaster is not taken seriously by progressives and the media. Concomitantly, these same groups regard the issue that is phony (climate) as an existential threat to humanity. They have it completely bass ackward.

We last wrote about the spending crisis on May 3, 10 and 17, 2020 and in a four-part series beginning April 8, 2019. These are available on our website (www.mllg.us). Our headline uses the term critical mass in its scientific sense. There is now enough fuel (debt) to trigger a chain reaction which becomes self-sustaining. That is illustrated by the numbers shown on the lines below. But instead of trying to slow the chain reaction, politicians (with full-throated media support) are adding more and more fuel.

The debt ratio is 101%; it will hit 175% by 2026 and 250% by 2031.

The crisis explodes long before we hit 500% in 2038 or 1,000% in 2044.

We updated the numbers based on all data extant. The public debt to GDP ratio is now 101%. The ratio will hit 175% in 2026 and 250% in 2031 on its way to 500%, 1,000% and oblivion. Before 2040, annual interest on the debt will exceed GDP; the timing depends on interest rates. Our forecasts, on which the above ratios are based, have proven far more accurate than those made by government or private economists.

The debt ratios speak for themselves and don’t require sophisticated economic analysis to understand. The Titanic has hit the iceberg and there is no way to unhit it. The key question now is how much time remains until Titanic sinks. No reasonable person can look at the data and conclude there are more than five or ten years left.

Progressives tout Modern Monetary Theory as a panacea. Our 5/3/20 post, devoted entirely to MMT, provides a primer. MMT explains certain economic phenomena better than mainstream economics. Proponents of MMT assert governments can borrow more, much more, in the short term than previously thought possible without raising interest rates; however, no economists assert the borrowing can be unlimited.

Following are some of our conclusions about which we are highly confident.

– Debt crisis is moral, not economic: As a nation we chose the easy path to avoid making difficult decisions and to seek social peace with massive borrowing.

– Crisis arrives within 10 years: It is impossible to discern any viable path forward with a ratio of 250% in 2031 and heading, via self-sustaining chain reaction, for 1,000%. However, the crisis could materialize sooner – much sooner – than ten years.

– MMT buys time: MMT permits more borrowing than previously thought possible but the amounts are limited. MMT can defer the day of reckoning, but can’t prevent it.

– Crisis hits suddenly: There will be no time to react. One morning everything will seem fairly normal but by the end of the day no one will buy US government debt.

– Government will print money: Initially, government will create monopoly money. Interest rates likely will soar and inflation will take off. Pension assets are at risk.

– No end until excess debt is purged: Once begun, the crisis will persist until all excess debt is purged. This will require one generation (lost generation) and America will be a far different and much poorer country when the crisis finally abates.

Americans know better; but we chose – and continue to choose – to believe progressive politicians and talking heads who promised us the moon was Stilton, wishes were horses and pigs had wings. They promised social peace by avoiding confrontations inherent in making difficult choices. How is that working out for America?

Next on February 14th – The implosion of the population bomb.

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More Liberty Less Government – mllg@cfl.rr.com – www.mllg.us