Facing Up to the Wreckage from the Past

The New Year brings both hope and optimism.  A chance to turn over a new leaf.  To pursue goals.  Work hard.  And make all your dreams come true.

The sentiment is admirable.  It is vital to attack challenges with renewed vigor.  However, the outcome, even for the most disciplined, can be a giant letdown.

January, named for the Roman god Janus, protector of gates and doorways, is depicted with two faces.  One looking into the past.  The other into the future.

The calendar year may have started anew.  But, as Janus reminds us, past actions – both good and bad – endure.  By this, there’s an abundance of wreckage from the past that still needs to be reconciled.

In the realm of money and politics there are mega amounts of leftover wreckage produced by central planners in Congress, at the U.S. Treasury, and the Federal Reserve.  Decades of deficit spending and currency debasement come with unpleasant effects.  The consequences of which dramatically impact your life and your livelihood.

The wreckage doesn’t magically disappear when the calendar hits January 1.  The slate isn’t wiped clean.  Rather, the wreckage piles up from one year to the next like rotting waste cake layers at a municipal landfill.

How will the central planners manipulate your livelihood in 2024?  How will fiscal policy from Washington influence your job, investments, and discretionary income?  How will Fed monetary policy impact credit markets?

These are some of the many questions that arise as we move from 2023 to 2024.  Today we narrow our focus to one great big pile of wreckage from the past, and a particular mishap leftover from 2023.

Stopgap Two-Step

On the last day of 2023, the U.S. national debt topped $34 trillion.  Countless officials, over many decades, thought it was a good idea to spend all this money on stuff the populous would not readily support with their tax dollars.  They also thought it was a good idea to stick future generations with the bill – including you.

When problems are put off long enough, they become someone else’s problem.  This has been the modus operandi in Congress for nearly 100 years.  And if you’re of a certain vintage – that is to say you were born after 1960 – the U.S. national debt is your problem.

On the immediate horizon, there’s a fabulous gift that Congress left itself from 2023.  If you recall, last November Washington failed – again – to get a handle on its spending problem.

Rather than make tough decisions, Congress opted to put them off until 2024.  They did this by passing something called a stopgap bill.

The purpose of the stopgap bill was to float enough debt to keep the lights on at every federal building through the holiday break.  That way Senators and Representatives were able to suckle candy canes and exalt their greatness on Christmas Day without any petty distractions.

The stopgap bill included an unusual two-step plan.  The first step extended funding until January 19 for priorities like military, veterans’ affairs, transportation, housing, and energy.  The rest of the government – spending not covered by step one – was funded until February 2.

In just several weeks, if Congress doesn’t come to a budget agreement, there could be another government shutdown.  Federal agency staff would go on furlough, with the promise of retroactive payment after the shutdown ends.

Political Fodder

In reality, permanent agency furloughs are needed to return the federal government to a nimbler state.  One that doesn’t stick its nose in everyone’s business while demanding tribute for its services.

Indeed, there are armies of meddlers with bloated salaries and bloated property values in Georgetown, Dupont Circle, and the surrounding Virginia suburbs.  Shouldn’t they be freed from their agency jobs so they can get on with their lives?

Here at the Economic Prism, we don’t expect this will happen in 2024.  Rather, we anticipate some deal will be reached to reduce deficit spending by $1 trillion over the next decade.

This all makes great newspaper headlines.  But what it really means is that by 2034, instead of piling up an additional $20 trillion in new debt, the U.S. government will only pile up an additional $19 trillion.  As part of this, the politicians in Congress will most certainly give themselves another raise.

In the meantime, the negotiations deliver plenty of political fodder.  For example, on Wednesday Senate Majority Leader Chuck Schumer told reporters he sees new hope for a spending deal to prevent a shutdown.

“We’ve made real good, good progress.  And we’re getting quite close.  I’m hopeful that we can get a budget agreement soon.  And I’m hopeful that we could avoid a shutdown, given the progress — that is certainly not out of the question, as some people have said it would be.”

Maybe so.  But whatever deal is reached won’t be any good.  We can guarantee you the budget agreement will be lacking on one very fundamental item.  It will not be balanced.  It will rely on debt to pay for its many obligations.

Hence, 2024 will further emphasize just how dead broke the U.S. government really is.

Facing Up to the Wreckage from the Past

Remember, about the time the stopgap bill was passed, Moody’s Investor Service lowered its U.S. credit outlook from ‘stable’ to ‘negative.’  Still, Moody’s kept the U.S. at AAA, its highest rating.

This came several months after Fitch downgraded its U.S. credit rating from AAA to AA+.  S&P Global Ratings downgraded U.S. credit all the way back in 2011.  Does Moody’s really believe U.S. credit is ultra-safe?

Without question, the U.S. government’s financial condition has changed dramatically for the worst over the last 50 years.  Yet Moody’s rates its credit as if the nation’s debt profile is still sound and sober.  What gives?

By lowering its U.S. credit outlook in November Moody’s set the stage for an actual downgrade in early-2024.  How swiftly Congress acts to get a new spending resolution in place will likely drive Moody’s decision.  Any delay and Moody’s will proceed with the downgrade.

Regardless, any downgrade would come much too late for anyone to really care about.  It won’t compel Washington to balance the budget.

In fact, the rate of deficit spending is accelerating.  As noted above, the U.S. national debt topped $34 trillion in the last day of 2023.  This comes on the heels of the debt exceeding $33 trillion in September.  So, in less than four months, Washington spent $1 trillion of borrowed money.

Here’s the point…

If you’re someone who works hard and is self-supporting through your own deeds, you will find that you reap less and less of the fruits of your labors with each passing year.  Higher taxes will consume a greater and greater share.  And what remains, will be consumed by the inflation tax as a result of deficit spending.

Facing up to the wreckage from the past is the renewed challenge with the start of each new year.  And, in 2024, the starting slate is as dirty as ever.