Discover more from Peter St Onge, Ph.D.
Americans want Spending Cuts. DC does not.
Americans of every party want spending cuts. The DC Uniparty does not.
It’s been an exciting week for the fiscal crisis engulfing America with $31.4 trillion in federal debt, on its way to $50 trillion.
With even CNN polls showing Americans overwhelmingly want spending cuts -- even Democrat voters are split 50/50 -- the week opened with Joe Biden’s handlers and their GOP counterparts burning the midnight oil to hammer out a debt ceiling deal.
The pressure was from being just days from Janet Yellen's long-promised “X-date” of June 1 when, if the GOP does nothing, America would finally free of deficits, at which point Washington would have to make do spending money on stuff voters actually want -- Social Security, veteran benefits, school lunches -- instead of activist-fed crony boondoggles and endless wars.
On Monday, the House Freedom Caucus, among the few adults left in Congress, urged House Speaker McCarthy to “Hold the Line” and simply let the Senate vote on the House-passed bill that cuts nearly $5 trillion in spending over the next decade. After all, the big spenders are the one asking for the debt ceiling hike, let them make the concessions. Trump also chimed in, urging McCarthy to hold out for “the kitchen sink.”
Biden's handlers, too, were facing pressure from progressives who dream of every dollar you earn being run through a bureaucrat like coffee beans through a civet, with the American people making do with leftovers.
Battle Royale to Dud Royale
Unfortunately, by mid-week the Battle Royale was looking like a Dud Royale going by financial markets -- who one assumes get plenty of leaks given brokers' warm relationships with the daytraders in Congress. Gold prices, Bitcoin, even VIX — the market’s “fear gauge” — were saying the GOP would, yet again, fold like cheap furniture. Reduced to begging for scraps to show the folks back home that at least they tried.
True to form, the GOP was negotiating with itself, lowering its spending cap from 10 years down to 6 years, with some floating a single year. Meanwhile, Biden offered a measly 2 years, calculated to get past the 2024 elections -- presumably because Biden's people plan to spend an ungodly amount between now and then and don't want to answer for it.
At which point, according to the WSJ, the two sides were "within $200 billion." Which is pretty disappointing considering doing absolutely nothing and just letting the ceiling hit would stop deficits, meaning $19 trillion in savings over the decade. As in, given a choice between doing nothing and saving $19 trillion, or burning the midnight oil to parry that down to just $200 billion -- at best — our fiscal stewards boldly chose retreat.
In which case one would expect yet another of the bipartisan debt ceiling "deals” like the last 7 that have doubled federal spending in just 10 years, from $3 trillion to over $6 trillion. After which we resume the march to that $50 trillion debt
Tone Shift or Head Fake?
Then, starting Wednesday afternoon, there was a glimmer of hope as both sides said they're not interested in talking anymore.
At that moment I was on the Charles Payne Show confidently saying the calm markets are telegraphing the GOP would fold. Then, not 5 minutes later, the Dow tanked 200 points. Gold jumped, Bitcoin jumped, VIX jumped to its highest point in weeks.
Could it be — dare we dream — that Republicans found their balls?
Of course, the first rule in Washington is it’ll do whatever disappoints the greatest number of voters. So I’m not holding out for my dream scenario of a default that issues fresh debt to cover the people voters actually like — veterans, pensions — while screwing China and Wall Street.
Nor should one be deluded enough to hope for the obvious strategy of just letting the debt ceiling hit so we get that free balanced budget amendment and end the deficits immediately: $19 trillion in savings, plus an immediate lowering of inflationary pressure that could actually let the Fed start reversing its rate hikes currently strangling the economy.
Still, any day Washington's not talking while stocks are nervous is a glimmer of hope that maybe, for once, Republicans actually get real something in return for greenlighting another couple trillion of debt.
What’s Next for the Economy
The amazing thing, to me anyway, is why the GOP is even negotiating: they already passed a House bill with almost $5 trillion in cuts, so Democrats can either vote for that or let the ceiling hit and upgrade to $19 trillion in savings.
Despite all the drama, the smart money's still on what's always happened: a bipartisan uniparty sellout that slows the runaway spending train from 80 to 79.8 on paper, so they can pump that to 90 once the news cycle moves on.
In fact, as the week closed, Goldman released a probability tree predicting just that: 95% chance of either a deal or no-deal where Treasury continues spending anyway — yes, that could well be illegal, but when has that stopped this administration. And 0% of a default. To which I’d add 0% chance of an actual debt ceiling with teeth.
So, barring a miracle, it's back to the inflation and the psychopathic obsession of this Federal Reserve with crushing the economy, and the banks, to clear the road for unlimited federal spending.
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See you next week!