The Debt Limit’s Last Exit To Fiscal Responsibility

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Team,

Here’s a highly topical special sneak peak at my latest oped in the Washington Times, which drops tomorrow. You will see much is at stake in the debt limit debate! Please share this one far and wide and vote in the poll at the end of the article.

The Debt Limit’s Last Exit To Fiscal Responsibility

The debate over a debt limit deal now raging in Congress offers the last possible exit ramp for future American prosperity.  Absent significant spending cuts, Bidenomics will careen America over a fiscal cliff while institutionalizing a 1970s stagflation on steroids.

America’s looming fiscal cliff is as unprecedented as it is staggering.  The legislation that most define Bidenomics – The American Rescue Plan, The Infrastructure Investment and Jobs Act, and the (anything but) Inflation Reduction Act – are catalyzing the most rapid increase in America’s national debt ever witnessed in a peacetime economy.

According to the Congressional Budget Office, America’s debt will soar from $33 trillion today to $45 trillion in 2030.  By 2050, the annual federal budget deficit will increase from 5% of GDP in 2030 to a mind-bending 13%.

In the short run, the US Treasury is selling trillions of dollars in bonds at ever-higher interest rates to finance the Bidenomics debt.  This surge in the money supply is putting unrelenting upward pressure on interest rates, mortgage rates, and credit card rates and already beginning to choke off economic growth. 

In the long run, the US government will devote more and more of its tax revenues just to service the Bidenomics debt.  This debt service will come at the expense of funding everything from roads, bridges, and national defense to Medicare and Social Security even as it transfers American wealth to foreign bond holders.

Absent significant cutbacks in future spending NOW, the US government has two ways to address its growing debt problem.  It can raise taxes, as Democrats are now pressing for.  However, such contractionary fiscal policy would further slow economic growth and likely reduce net revenues. 

Alternatively, the US Treasury, in cooperation with the Federal Reserve, can simply print new money to pay off the debt.  However, this strategy, known as “monetizing the debt,” comes at an even greater cost: More inflation, and possibly hyperinflation. 

Faced with such a Hobson’s choice, Congress’ third -- and really “first best” -- solution is to dramatically claw back significant chunks of future spending dictated in the Bidenomics budget.

Enter Stage Right, a core group of principled Republicans in the House of Representatives who want to do just that. 

Their numbers include Andy Biggs and Eli Crane of Arizona; Lauren Boebert and Ken Buck of Colorado; Matt Gaetz, Cory Mills, and Anna Paulina Luna of Florida; Victoria Spartz of Indiana; Matt Rosendale of Montana; Dan Bishop of North Carolina; Ralph Norman of Oklahoma; and Tim Burchett and Andy Ogles of Tennessee.

With the help of strategists like Steve Bannon and former OMB Director Russ Vought (both of whom I served with in the Trump White House), these fiscal responsibility hawks have had the courage and vision to fight for significant spending cuts as part of any deal to raise the debt limit.

Shamefully, their biggest critic is not a Bidenite or even a hostile CNN or Fox corporate media flak.  Rather, it is Republican House Speaker Kevin McCarthy who is doing his best impression of Nero while inflation burns.

Memo to Kevin: Much of the Bidenomics agenda now destroying the balance sheet of America was passed only because of your own Vichy collaboration with profligate Democrats and pearl-clutching RINOs at the behest of the corporate donors who own you.  Your hands are dirty, and the only way to get them clean is through a debt ceiling deal that trims down to manageable levels the future spending that you helped bake into the Bidenomics budget.

And Kevin, here's the buried lead: The fiscal apocalypse we are facing is no run of the mill, banana republic, Argentina-style meltdown easily resolved by an international default on US debt and a simple debt restructuring.  Rather, it’s a 1970s-style stagflation on steroids.

Bidenomics initially lit the inflation portion of the stagflation candle with a series of massive Keynesian over-stimuli.  The resultant price shocks have since been exacerbated by energy and food price shocks. 

These energy and food price shocks are largely the result of Joe Biden’s war on American oil producers and bungling of Russia’s invasion of Ukraine coupled with Biden’s ceding of the leadership of the oil cartel OPEC to the world’s two biggest oil producers besides the US – Saudi Arabia and Russia.   Thanks to Biden’s fecklessness, Saudi princes and Vladimir Putin now set oil prices, not the US; and energy prices are now more than 50% higher than during the Trump years and climbing still.

Biden’s inflation has, in turn, provoked the Federal Reserve into its fastest rate hikes in over 20 years.  The resultant credit crunch is now squeezing key sectors of the economy, choking economic growth and bringing into play the “stag” or stagnation part of the stagflation equation. 

Absent a fiscally responsible debt limit deal, Main Street will feel the pain for years to come in the form of higher unemployment and depressed real wages.  Meanwhile, slowing economic growth and increased financing costs are already reverberating up and down Wall Street – with a severe market correction a growing likelihood in the short run and more meager rates of return on stock market investing over the longer run.

Of course, none of this would be happening under a Trump administration.  Once again, as with America’s humiliation in Afghanistan, capitulation to Communist China, and invasion at our southern border, Joe Biden teaches us in the hardest of ways that elections have consequences.

Let us all pray now for the success of the fiscal responsibility hawks now trying to hold the line for all of us.

Peter Navarro served in the Trump White House as manufacturing czar, chief China strategist, and Defense Production Act policy coordinator during the pandemic.  Follow Peter at: