13 Reckonings for America
MN Gordon

One of the noteworthy features of the political climate in the USA is the lack of agreement on what the facts are – and how the economy should be allowed to function. Should it be a hands-off laissez-faire economy? Should there be more regulatory intervention?

Many politicians speak of free markets when they think it will help them get votes. But the body of work over the last 100 years is that big government is always the chosen solution.

President-elect Trumps, for his part, promotes policies that will do both. He wants to slash regulations and cut spending. But he also wants to preserve Social Security, boost defense spending, and place significant trade tariffs on foreign imports.

The simple fact is you cannot have your cake, and both eat it too. Once you have it, it is already gone. There is nothing left to eat.

This reality is why the DOGE bros – Elon Musk and Vivek Ramaswamy – will have trouble slashing $2 trillion from the budget. Without some give from transfer payment programs and defense spending, it will be impossible to pull off.

Nonetheless, shrinking the size of government is a noble cause and one that should be pursued with vigor. Moreover, we believe Musk and Ramaswamy should think bigger.

We would like nothing more than for federal spending, as a percentage of the economy, to shrink to below 10 percent. That’s where it was on the eve of World War II. Today it is about 22 percent.

Thus, to achieve this, government spending would need to be cut by about 55 percent, which amounts to roughly a $3.71 trillion reduction in spending. In fiscal year 2024, total receipts were $4.92 trillion while total spending was $6.75 trillion.

Cutting the $6.75 trillion in spending by 55 percent – or by $3.71 trillion – would bring the annual budget down to $3.04 trillion. With $4.92 trillion in receipts collected, this would leave a $1.88 trillion surplus that could be applied towards paying down the national debt. At this rate, the $36 trillion national debt could be paid off in just under 20 years.

Generous Gifts

Getting from here to there requires doing the unthinkable. It requires cutting back on Social Security and Medicare promises, and slashing defense spending. These are wholly unpopular options. No one from either party is willing to consider them. Our readers send us nastygrams whenever we highlight this unpleasant reality.

Still, arithmetic is arithmetic. We can’t change it. For it’s the reality of how the world works. It predates the invention of numbers. In fact, numbers are merely a way to explain these immutable facts. Even new math or communist propaganda cannot make 2 + 2 = 5. It’s just not possible.

Cutting $2 trillion in spending as Musk and Ramaswamy have stated – or the $3.71 trillion we’d like to see – without cutting back on Social Security and Medicare promises, and defense spending, is hopeless. We don’t like it one bit. But these promises never should have been made in the first place. So, too, the military industrial complex should have never grown to its current state of obesity.

The following quote is often attributed to an obscure Scotsman from the 18th and early 19th century named Alexander Fraser Tytler. Though there is no direct record of Tytler uttering these words, the sentiments are important:

“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.”

Questions of democracy, defense spending, direct transfer payments, and policies of currency debasement are intertwined. Here’s why…

Curtailment

The extreme currency debasement during the coronavirus madness triggered a massive spike in consumer price inflation. In short order the M2 Money Supply – a broad measure of the money supply that includes cash, checking accounts, and short-term savings accounts – increased by over $6 trillion.

To finance this orgy of new money, the Federal Reserve created credit out of thin air and plowed it into Treasuries. Specifically, the Fed’s balance sheet spiked by about $5 trillion between January 2020 and mid-2022. Since mid-2022 it has come down slightly. But nowhere near where it was prior to 2020.

This week’s CPI report shows that consumer prices inflated at an annual rate of 2.7 percent in November. This is compounded on top of a 22 percent increase since March 2020, when government lockdowns were ordered, and big-time money printing went into effect.

To rein in consumer price inflation government spending must be curtailed. This, unfortunately, means cutting back on the promises owed to the American people. The nation simply cannot afford them. And the alternative of continuous money printing causes continuous consumer price inflation.

On these questions of government spending and currency debasement, Republicans and Democrats appear to be equally inconsistent. Any semblance of a guiding philosophy has been watered down over the last 100 years from a Guinness Extra Stout to a cheap 3.2 beer. The value of the dollar has also been watered down in kind.

The populace, for that matter, also can’t get its story straight. The demands and desires of government always change with the direction of the wind. Still, we suspect these conflicting demands will be reckoned with during the next credit crisis and economic collapse.

13 Reckonings for America

For meditative purposes, what follows is a partial list of reckonings – thirteen of them – for America, which are presently lost in a state of suspended animation:

1. Everyone calls for smaller government, as long as their entitlement payments are not restricted.
   
   
2. Everyone distrusts the government, until the economy contracts and they need a federal bailout via a cheap interest refi.
   
   
3. Everyone says they’re for free trade, before (not after) their job’s offshored to China or Vietnam.
   
   
4. Everyone disparages Made in China products, except when they can buy them at Walmart or Costco at everyday low prices.
   
   
5. Everyone wants safe and state of the art infrastructure, as long as their taxes aren’t raised to pay for it.
   
   
6. Everyone despises inflation, except when it’s inflating their stock portfolio or the price of their home.
   
   
7. Everyone derides the ills of government deficits until they’re faced with the prospect of fiscal austerity.
   
   
8. Everyone favors a trade war, as long as it doesn’t jack up the price of flat screen televisions and iPhones.
   
   
9. Everyone loves green energy, just not in their backyard.
   
   
10. Everyone believes in universal healthcare, before (not after) they have to go see a specialist.
    
    
11. Everyone loves cheap credit, but only up to the point where it provokes a mass debt default.
    
    
12. Everyone relishes government sponsored pharmaceuticals, until their family, friends, and neighbors start dying from them.
    
    
13. Everyone wants this, but they also want that…though only if it’s on someone else’s dime…and on, and on.

The point is, when everyone goes broke and the economy slows to a standstill, the people and the politicians will squawk and shriek in unison. They’ll demand for the government to ‘do something.’ The shouting and screaming will grow louder up until the moment the fake money system dies, and democracy is lost to dictatorship.

After that, things will get especially nasty.

[Editor’s note: Have you ever heard of Henry Ford’s dream city of the South? Chances are you haven’t. That’s why I’ve recently published an important special report called, “Utility Payment Wealth – Profit from Henry Ford’s Dream City Business Model.” If discovering how this little-known aspect of American history can make you rich is of interest to you, then I encourage you to pick up a copy. It will cost you less than a penny.]

Sincerely,

MN Gordon
for Economic Prism

 

MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.

 

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