U.S. government finances are an absolute mess, according to the latest Congressional Budget Office report.
Across the board: spending, deficits, debt — all moving in the wrong direction. There is no excuse for it, and there is certainly no economic justification for it.
This is big government socialism on a tear, and at some point, you have to ask: With all this spending and borrowing, will the Federal Reserve be forced to enable the government's faltering finances by creating too much cash and reviving inflation?
You also have to ask: When will government borrowing rates in the bond market start heading back up? So, just in the last four months, the new CBO scorecard shows $2.6 trillion in higher spending over the next 10 years.
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For this Fiscal Year 2024 alone, spending has been re-estimated $400 billion higher in just a few months. A good chunk of this is Joe Biden's student loan cancelations, some of his Medicaid expansion, and some of the badly misnamed Inflation Reduction Act's subsidies for electric vehicles and the Green New Deal. It's not a revenue problem because revenues are holding nice and high.
It's not a defense spending problem, because defense is still underfunded and expected to hit a post-World War II low of 2.8% of GDP. Overall spending is expected to go to 5.6% of GDP within a decade — that's almost 4 percentage points higher than the average of the past 50 years. With all that spending, the CBO expects $2 trillion deficits as far as the eye can see, culminating in a $52 trillion total debt in public hands, which will come to 122% of GDP.
These are outrageous numbers for an economy that's close to full employment. There is no pandemic. There is no war and, so far, no recession. What there has been is a 20% rise in the level of consumer prices during Mr. Biden's term and a 2% drop in real weekly wages over that period.
What we do have is over $1 trillion of federal interest payments, which is crowding out defense and entitlements, and the Biden Treasury is financing these massive deficits at the very short end of the maturity spectrum, which also happens to be the costliest place to fund the borrowing. Go figure. It's a huge mistake.
The Wall Street Journal estimates that if federal spending as a share of the economy just remained at its pre-pandemic average, the deficit would be $890 billion lower this year, and $13.4 trillion smaller than the CBO's 10-year projection.
Meanwhile, even after spending all this money, the economy will only grow at an anemic 1.8%, according to the budget office. How about repealing the entire phony Inflation Reduction Act, stopping the student loan write-offs and stopping the pandemic-era welfare expansions? That's a start.
Keep the Trump tax cuts so we can grow the economy at 3% — and that would throw off trillions more in revenues, without raising taxes. One reason Joe Biden's economic polls are at rock bottom is that people look at numbers like these, they search their own shrinking pocketbooks, and then they hear he wants more of the same — even bigger government with even more over-regulation. In other words, there's no confidence in the current White House. It is time for a change.
This article is adapted from Larry Kudlow’s opening commentary on the June 20, 2024, edition of "Kudlow."
