China Pleas in Vain for US Fiscal “House in Order”

The rulers of China are telling US politicians to get in line and resolve their financial challenges. That’s not surprising, given that they hold US$1.3 trillion in federal government bonds. However, if they think Congress — not to mention the states — has hope of fiscal solvency anytime soon, they must be deluding themselves. In fact, this scene from The Onion is more likely than the repayment of US federal debt.

US Government Stages Fake Coup To Wipe Out National Debt

As reported in The Independent:

The Chinese Vice Foreign Minister, Zhu Guangyao, told America’s deadlocked politicians on Monday that “the clock is ticking” and called on them to approve an extension of the national borrowing limit . . .

“We ask that the United States earnestly takes steps to resolve in a timely way the political issues around the debt ceiling and prevent a US debt default to ensure the safety of Chinese investments in the United States . . .”

There are just two problems, alongside the ominous magnitude of the debt: (1) political constraints are protecting the spending spree and its trajectory, and (2) there is nowhere near enough revenue available to satisfy the ongoing binge.

Consider that in just the past six years, the official national debt has grown by more than US$7 trillion. The sycophants even celebrate the success of a US$759 billion annual deficit — US$2,372 for every single individual in country — since it is the lowest in the Obama tenure. (Let’s not even get into the criminal and deceptive “accounting” at play.)

The magnitude of these deficits may be perplexing, particularly given that a majority of US voters support a balanced budget amendment. It reminds me of a quip from Robert Higgs from years back. “I want a smaller building,” he remarked, “but don’t remove one brick.”

He was referring to this persistent confusion: while a majority of people may claim federal spending is too high, they oppose cutting any specific program, with the rare exception of foreign aid. Why else, for example, would Social Security be a third rail, despite its well-known insolvency and Ponzi scheme nature? President Nixon expanded benefits by 20 percent in 1972 to buy himself reelection, and the same silliness continues to this day.

There’s no smaller building on the horizon for D.C., because neither voters nor insiders want to remove any bricks.

The taxation side presents no way out either, not that I would want more wealth and income stolen from those who labored for it. If, for example, the federal government were to confiscate all profits from every Fortune 500 company — ignoring the destruction to market incentives — that would be less than $500 billion. Even a one-time confiscation of every penny of income from households that earn $250,000 or more would only just cover the deficit and amount to less than half of the federal government’s total reported budget.

Given these two constraints, the most likely outcome is the continued devaluation of the US dollar via the Federal Reserve and the inflation tax. It will allow the federal government to keep papering over its debts, but for the Chinese and other creditors, it is already a default — whether people want to acknowledge so or not.

Subscribe free to our daily newsletter
Sign up here to get the latest news, updates and special reports delivered directly to your inbox.
You can unsubscribe at any time