Only One Thing Can Come from Ballooning Federal Deficits

<p>Representatives in the U.S. House have raised the curtain on the latest round of budget theater in Washington DC. The actual conservatives in Washington can once again be seen fighting a futile rear-guard action to hold the line on spending.</p>
<p>The only real question is whether they will relent before House Speaker Kevin McCarthy cuts another deal with Democrats to preserve spending without meaningful restraint.</p>
<p>Matt Gaetz and other conservatives in the House will have difficulty winning even small spending concessions. They support a $1.47 trillion short-term spending bill while McCarthy and his supporters back a bill worth $1.59 trillion. The $120 billion difference is a pittance when the actual deficit will be closer to $2 trillion annually.</p>
<p>The Uniparty-controlled Senate isn’t even talking about balancing the budget.</p>
<p><img class=”mx-auto md:float-right p-3″ src=”https://www.moneymetals.com/uploads/content/debt-sm.jpg&quot; alt=”Debt” loading=”lazy” /></p>
<p>The people behind Biden certainly have no interest in exercising fiscal restraint.</p>
<p>The 2024 presidential election also isn’t going to bring spending reform. Even Trump’s most ardent supporters do not expect him to take a hard line on the budget.</p>
<p>Given the political battle for balancing federal budgets is lost (and has been for decades), some still cling to the hope that the bond market will impose some curbs on federal debt.</p>
<p>Advocates for fiscal discipline used to believe &ldquo;bond vigilantes&rdquo; would eventually put the insolvent Treasury into a corner.</p>
<p>The idea was that discriminating bond investors would demand higher and higher interest rates as spending grew increasingly irresponsible. When the Treasury could no longer afford the higher rates, there would be no choice but to rein in deficits.</p>
<p>Few imagined the Federal Reserve would be so eager to step into the bond market as the bidder of last resort. Overt debt monetization &ndash; central bank purchases of the government’s own debt with freshly printed money &ndash; was considered a sure sign of desperation. A currency crisis would follow just behind. Not!</p>
<p>It was a failure of imagination. The Fed successfully monetized federal debt for much of the past 15 years.</p>
<p>This period is literally unprecedented in terms of the explosion in Treasury debt.</p>
<p>Only in the past couple of years has the Fed backed off of stimulus, allowing interest rates to finally move higher &ndash; off of the record lows.</p>
<p>Due to reckless fiscal and monetary policy, the U.S. dollar is no longer unchallenged as the world reserve currency. Central banks around the world are diversifying their currency reserves and bumping up their gold purchases.</p>
<p>Inflation is the only force capable of sustaining the regime of perpetually ballooning debt and deficits. Only when nobody wants the currency the Fed prints and Congress spends, the moment of actual change will have arrived.</p>

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