The Fiscal Crisis Is Finally Being Recognized

A troubling  statistic has made the rounds through social media. It should be a warning to anyone, but in particular those who understand the dangers of fiscal irresponsibility: the US government must now spend more of their budget on interest payments than defense. Our own inability to stop consuming has turned interest into one of the greatest binding constraints on our nation’s finances. With a deficit that grows each year, an interest payment that takes on a life of its own is particularly dangerous. Even without a massive interest payment our deficit would almost inevitably grow given the desire of the people and the state to increase spending across every domain, every year. Unless they’re in a unique hyper-growth situation, a business running a deficit is a dangerous sign. Knowing that our government is far from a hyperscaler should make these recurring deficits worrying. An infrastructure or power company running continual deficits is much more of a problem than Tesla running deficits, and our government falls into the first category. The public seems to be recognizing the threat of the national debt in a way that they have not before. This is not saying much due to the systematic ignorance towards the fiscal crisis that seems so common. The incentives are all aligned towards the creation of more debt, and the only thing that can solve the problem is better institutions or a people that are dramatically aware of debt. It is difficult to predict which of these is more likely, but any level of awareness is better than the lack of it common in the last few decades.

Defense is one of the most agreed-upon categories of government spending. It is something that few would argue that private entities should fund, and also something that protects the very ability of a nation to exist. Although the same negative incentives apply to defense as to any other government spending category, there are ways to mitigate the incentive towards overspending. Even in government directed markets, freedom can allow for more innovation and creativity. Concentration driven by rent-seeking and a high level of specificity in procurement regulations has made it difficult for new entrants to break in, while keeping costs elevated above what they would be in a less regulated market. The defense budget is far larger than it needs to be. If we had a more efficient free market procurement system that allowed real competition, prices would naturally drop. However, defense takes up a massive portion of US GDP and now even our interest payment is larger than that. As the US continues to spend to maintain our current level of consumption and ever-increasing expenses, we are put in a more financially and geopolitically dangerous situation each year.

While the US dollar experienced a brief upward value shock, it will naturally continue to decrease in value over time, making the crisis accelerate even more quickly. Rand Paul warned us about it in 2016, Peter Schiff warned us about it in 2007, and Ron Paul had been warning us about it before that. They were all right, and the tools the US utilized to stave off the crisis are in shorter and shorter supply. Our nation is still a bright light to the world, but it faces higher and higher costs to maintain what it has. All cultural and military strength can become so quickly dissipated if inflation is not checked. Trump‘s suggestion of hyperinflation to pay off the American debt is just one example of how drastic our situation has become. The monetary base must be rebuilt before any strategy for strengthening the US can be successful. 

The fact that the interest payment is now greater than our spending on defense, and that a sitting US president is suggesting hyperinflation to deal with our debt are two facts that have caught the attention of the public and will hopefully continue to remind people just how serious our situation is. We can at best hope for a less volatile decline if we continue down this path. Switching from fiat currency is the most crucial step to coming down from a world of financial engineering and regulatory barriers to become a truly stable nation. America has overextended itself and the dollar is just one example of this. The dollar being the reserve currency of the world is a historical accident that has continually justified our poor monetary policy and our poor fiscal policy. We must attack both with equal vigor before the madness gets even more out of hand.