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March 11, 2019 | The Only Way to Drain The Swamp…

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

GUALFIN, ARGENTINA – A Washington Post headline caught our eye on the weekend:

“Trump to slash spending”

At last! Our eyes lit up. Our pulse raced. Finally, the Great Disruptor was disrupting something that really matters.

Slash spending! Cut the budget! Fire federal employees! Eliminate agencies. Kill departments. Bring home the troops. Curb the Deep State. MAGA!

 

Histrionic Talent

It wasn’t much of a slash… just 5%. But at least the president finally had the razor in his hand.

But wait… what’s this?

The Post:

The budget has little chance of becoming law because of bipartisan resistance to many of its elements, but it sets forth the White House’s vision ahead of what is expected to be a fierce battle over government spending later this year.

Even with deep spending cuts, the president’s plan would not balance the budget until the mid-2030s, two people briefed on the plan said, falling short of the 10-year time frame that Republicans have sought for years.

What a disappointment. No real cut at all. Just more political showbiz. More “us vs. them.” Conservatives against liberals.

The only way the White House could make a real cut in spending would be to propose an across-the-board cut… and bypass Congress, selling the idea directly to the American people.

The president would have to use his histrionic genius by going on TV and explaining what is really going on – that we’ve been spending more than we can afford for many years (the last real balanced budget was in the Carter Administration)… and that the real beneficiaries are the Swamp Critters, not the American people)…

…that we could defend the country with less than half the Pentagon’s budget (most of the money is used to bumble around the world, not protect the homeland)… and that if we don’t do something about it, we’ll go broke (inflation… depression… the usual calamities).

He might then be able to reach the residual common sense of the public (if there’s any left)… and overcome the resistance of the special interests, the lobbyists, the hacks, the cronies, and the Deep State elite… and actually reverse the insidious trends of the last five decades.

But wait… we’re dreaming, aren’t we?

Swamp Critter

And it will never happen anyway.

First, because Donald Trump is a Swamp Critter himself; he’s the “king of debt” who will want to keep the jig going as long as possible.

Second, because the Deep State wouldn’t allow it. Imagine how the media… the Congress… the insiders… the PhDs… the know-it-alls… would howl! (Yes, it gives us great pleasure to think about it.)

Third, because the American people have gotten used to thinking that they can get something for nothing.

The present administration is adding to the federal debt at the rate of about $3 billion per day. Trump’s budget proposal pretends that his extra debt is nothing to worry about. It forecasts growth of 3% per year. This will so enlarge the GDP, or so the argument goes, that the debt will shrink in proportion.

Yes, and time will go backward… by 2029, we will all be 10 years younger!

We are now at the tail end of a boom. GDP growth rates have been going down for at least 30 years. Averaged over the last 10 years, the real GDP growth rate now is only 1.5%, not 3%. And there’s no evidence – none – that the trend of the last 10 years is reversing.

And why would it? The burden of debt is still growing, not shrinking. And interest rates are rising, not falling… making the debt burden heavier.

And then, as the feds become more desperate to keep the scam going, they will meddle in the economy even more, further reducing real growth rates.

The real crisis will begin, no matter which party is in power, when the stock market crashes. Then, growth rates will go negative… and federal borrowing will soar.

This will throw the White House’s convenient projections into the “round file” where they belong.

Government revenue… now running about $3 trillion… will fall to $2 trillion. And federal spending… now running about $4 trillion… will rise to about $5 trillion.

The feds will not be able to finance that $3 trillion gap without pushing up interest rates. But higher rates will sink the economy into a depression, further reducing federal revenues. So, the feds will resort to the “printing press” – aka, the Fed.

We don’t presume to know what will happen in any detail. But some trends are almost impossible to reverse. Instead, they have to run their course… all the way to the grim end.

Regards,

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Bill

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March 11th, 2019

Posted In: Bill Bonner's Diary

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