Tag: Eric Boehm

The Debt Crisis Is Getting Real

Mary Pat Campbell

Link: https://reason.com/2023/10/04/the-debt-crisis-is-getting-real/

Excerpt:

When Yglesias wrote that column for Vox in 2016, the federal government owed about $19 trillion. Today, it owes more than $33 trillion, and we just added another $2 trillion in a fiscal year with no major national emergencies.

In short, the federal government followed Yglesias’ advice. But it might be more accurate to say it went along with what was clearly a bipartisan consensus formed in the mid-2010s: that borrowing was cheap, debt was easy to afford, and deficit spending allowed everyone to enjoy “a better life” with none of the downsides of austerity.

Unfortunately, the downsides have arrived.

The yields on U.S. Treasury bonds are now hitting levels not seen in decades. The 10-year Treasury bond is nearing 5 percent, while the 20-year bond has already crossed that threshold—and some analysts expect higher yields to be coming, CNBC reported Tuesday.

Why does that matter? “We took out a mortgage thinking we’d be paying 2%, but now we’re paying 5%,” Marc Goldwein, director of policy at the Committee for a Responsible Federal Budget (CRFB) wrote on X (formerly known as Twitter) on Tuesday.

Unlike most mortgages, which have fixed interest rates, much of the U.S. government’s debt is tied up in short-term bonds which periodically “roll over” into new bonds with updated interest rates. As a result, higher interest rates mean higher interest payments—and those funds come directly out of the federal budget, leaving less revenue for everything else the government might aspire to do, whether funding welfare programs or buying more fighter jets.

“That debt, borrowed at low rates, is now being rolled over into Treasuries paying interest rates between 4.5 and 5.6 percent,” the CRFB explained last month. “Though borrowing seemed cheap during those periods, policymakers failed to account for rollover risk, and we are now facing the cost.”

Interest payments on the debt will be the fastest-growing part of the federal budget over the next three decades, according to the Congressional Budget Office’s (CBO) projections. In the shorter term, interest payments are set to triple by 2033, when they will cost an estimated $1.4 trillion—a total that will only grow higher if more unplanned borrowing takes place before then, or if interest rates rise higher than the CBO expects.

Author(s): Eric Boehm

Publication Date: 4 Oct 2023

Publication Site: Reason

Inflation Cools to 7.1 Percent, but Still Has a Long Way To Fall

Mary Pat Campbell

Link: https://reason.com/2022/12/13/inflation-cools-to-7-1-percent-but-still-has-a-long-way-to-fall/

Excerpt:

Inflation finally slowed to a near halt in November, possibly signaling a winding down of the prices crisis that has gripped American households this year.

Prices rose just 0.1 percent on average during November, the Department of Labor reported on Tuesday morning. The year-over-year inflation rate fell as well, to 7.1 percent for the 12 months ending in November. That’s the lowest annualized rate since December 2021, and is significantly lower than the 7.8 percent annualized rate reported a month ago.

This also marks the fifth consecutive month in which the annualized inflation rate has held steady or fallen, after peaking in July at an astounding 9.0 percent.

That trend suggests that the Federal Reserve has finally gotten a collar on rising prices. The central bank’s board is expected to hike interest rates for the seventh time this year when it meets on Wednesday. That means it will continue getting more expensive to obtain a mortgage or a car loan, and credit card interest rates will continue to rise—but also that savings accounts and other interest-based investment vehicles are paying larger returns.

Author(s): Eric Boehm

Publication Date: 13 Dec 2022

Publication Site: Reason

Inflation Hits 9.1 Percent, Highest Level in 41 Years

Mary Pat Campbell

Link: https://reason.com/2022/07/13/inflation-hits-9-1-percent-highest-level-in-41-years/?utm_medium=email

Graphic:

Excerpt:

Prices were 9.1 percent higher in June than a year before, exceeding expectations and surging to a 41-year high.

Department of Labor data released Wednesday morning showed that inflation picked up speed in June, rather than slowing. Prices rose by 1.3 percent during the month, up from a 1 percent increase in May. A sharp rise in energy prices, and gasoline prices particularly, helped power the annualized inflation rate to its highest levels in more than four decades. Food prices rose by 1 percent during June, and are up 10.4 percent over the past year.

Author(s): Eric Boehm

Publication Date: 13 July 2022

Publication Site: Reason

McConnell Won’t Block Debt Ceiling Increase, Says He Wants Democrats To ‘Proudly Own It’

Mary Pat Campbell

Link:https://reason.com/2021/12/08/mcconnell-wont-block-debt-ceiling-increase-says-he-wants-democrats-to-proudly-own-it/

Excerpt:

Congressional showdowns over the debt limit are nothing new, but this time around there’s a unique wrinkle. The House approved a bill on Tuesday night with what was essentially a party-line vote that paves the way for Congress to avoid a possible default on the national debt in the coming weeks. Here’s the tricky part: “The measure would create a special pathway—to be used only once, before mid-January—for the Senate to raise the debt limit by a specific amount with a simple majority vote, allowing Democrats to steer clear of a filibuster or other procedural hurdles so that Republicans would have no means to block it,” The New York Times reports.

The upshot, assuming this deal holds up long enough to avert the December 15 deadline for raising the debt limit, is that there won’t be another showdown like this before the midterm elections next November.

Author(s):Eric Boehm

Publication Date:8 Dec 2021

Publication Site:Reason

40 Years of Trillion-Dollar Debt

Mary Pat Campbell

Link:https://reason.com/2021/10/22/40-years-of-trillion-dollar-debt/?utm_medium=email

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Excerpt:

It’s true, of course, that $1 trillion doesn’t buy what it used to. That amount in 1981 would purchase about $3 trillion worth of stuff today. The best way to measure the national debt over long periods of time is to compare it to America’s gross domestic product (GDP), a rough estimate of the size of the country’s economy in a given year.

In the early 1980s, for example, even as the gross national debt exceeded $1 trillion for the first time, the national debt was less than 40 percent of GDP. The national debt is now equivalent to the country’s GDP and is on pace to be nearly 200 percent of GDP by the middle of the century, as this chart from Brian Riedl, a deficit hawk and former Republican Senate staffer now working at the Manhattan Institute, helpfully illustrates:

Author(s): Eric Boehm

Publication Date: 22 Oct 2021

Publication Site: Reason

Bernie Sanders Is (Mostly) Right About the SALT Deduction

Mary Pat Campbell
Bernie Sanders Is (Mostly) Right About the SALT Deduction

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Excerpt:

“I want to tell you this: If I become majority leader, one of the first things I will do is we will eliminate it forever,” Schumer said during a July 14 press conference on Long Island. “It will be dead, gone, and buried.”

“It” in this case was the cap on the state and local tax (SALT) deduction, which was imposed as part of the 2017 federal tax reform bill passed by Republicans and signed by President Donald Trump. As a result of that law, Americans are allowed to deduct a maximum of $10,000 in state and local tax payments from their federally taxable income; previously the deduction was uncapped, and it overwhelmingly benefitted the richest households while shifting their federal tax burden to everyone else.

…..

Sen. Bernie Sanders (I–Vt.) is correct to point out, as he did in an interview with Axios this week, that the SALT cap creates a serious optics problem for Democrats. Sanders says he will oppose Schumer’s effort to attach the SALT cap repeal to the transportation bill because “it sends a terrible, terrible message when you have Republicans telling us that this is a tax break for the rich.”

Author(s): Eric Boehm

Publication Date: 11 May 2021

Publication Site: Reason

After $1.9 Trillion Spending Hike, Biden Is Planning $3 Trillion in New Spending

Mary Pat Campbell
After $1.9 Trillion Spending Hike, Biden Is Planning $3 Trillion in New Spending

Excerpt:

The numbers here are simply staggering. Consider the fact that in 2019, the last full budget year before the pandemic, the federal government spent a grand total of $4.4 trillion. Combined with the bill that already passed in March, this plan represents nearly $5 trillion in new spending.

Though the specifics of the proposal are in flux, it seems to bear some similarities to the $1.9 trillion American Rescue Plan (ARP) that Biden signed into law earlier this month. That bill was ostensibly a COVID-19 relief measure, but only a small percentage of the money was actually directed toward dealing with the pandemic. The upcoming $3 trillion package will be called an infrastructure bill, but the Times says only about $1 trillion would be directed toward such traditional infrastructure items as roads, bridges, ports, and improvements to the electric grid.

Author(s): Eric Boehm

Publication Date: 22 March 2021

Publication Site: Reason

Federal COVID-19 Bailout Prohibits States From Cutting Taxes

Mary Pat Campbell
Federal COVID-19 Bailout Prohibits States From Cutting Taxes

Excerpt:

Since the federal government is giving states money that they don’t need, there are two things state lawmakers can do: Use the federal money to grow government spending or pass that extra cash along to taxpayers by lowering their tax burdens.

However, the Senate inserted language in the American Rescue Plan expressly telling states that they “shall not use the funds provided…to either directly or indirectly offset a reduction in the net tax revenue,” or do anything that “reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.”

That same section of the bill also bans states from depositing the federal bailout into their public pension funds. That’s probably a good idea, but it’s pretty ironic considering that the American Rescue Plan also contains a completely indefensible bailout of some private-sector pension funds run by labor unions.

Author(s): Eric Boehm

Publication Date: 10 March 2021

Publication Site: Reason

The ‘COVID Relief Bill’ Is Mostly an Expensive Bundle of Politically Motivated Giveaways

Mary Pat Campbell
The ‘COVID Relief Bill’ Is Mostly an Expensive Bundle of Politically Motivated Giveaways

Excerpt:

A sizable portion, about $500 billion, is a bailout of state and local governments that for the most part do not need one. While state tax revenues took a small hit from the pandemic and associated economic lockdowns, the damage is far smaller than was once feared. States should handle their own finances.

But it’s not just a bailout; it’s a bailout in which the funding is allocated based on the size of each state’s unemployed population. In other words, states that imposed draconian and unnecessary economic lockdowns during the past year are going to get a larger share of the federal cash than states that managed to balance public health needs and the economy—an arrangement that New Hampshire Gov. Chris Sununu rightly calls “outrageous.”

Author(s): Eric Boehm

Publication Date: 3 March 2021

Publication Site: Reason

Why Does Janet Yellen Suddenly Sound Like Trump on Trade?

Mary Pat Campbell
Why Does Janet Yellen Suddenly Sound Like Trump on Trade?

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Excerpt:

Fewer workers are employed in manufacturing, but the average worker is earning far more per hour. This is a problem? Meanwhile, American manufacturing output is significantly higher today than it was when the WTO was established. In fact, even at the lowest point of last year’s COVID-19 recession, manufacturing output was still higher than it had been in any year before 1997.

Author(s): Eric Boehm

Publication Date: 12 February 2021

Publication Site: Reason