Debt, Not the Debt Limit, Is the Real Fiscal Crisis – WSJ

A spending blowout and higher interest rates make spending cuts not only necessary but urgent.

By Red Jahncke | The Wall Street Journal | Jan. 19, 2023 – Excerpts:

Washington is now consumed by the question of whether to raise the ceiling on the national debt. That ceiling currently stands at $31.38 trillion, barely above the $31.34 trillion of outstanding debt subject to the ceiling, according to the latest Daily Treasury Statement.

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In the first three months of this fiscal year, gross interest on the national debt hit $210 billion—or $144 billion in net interest, excluding interest on Treasury securities held in government trust accounts. That’s $840 billion gross and $576 billion net on an annualized basis, up dramatically from $580 billion gross and $383 billion net in the 12 months before the economic shutdown in March 2020. This escalation doesn’t even reflect the full-year impact of the Fed’s 2022 interest-rate increases. The federal-funds rate a year ago was near zero.

Rising interest expenses are reflected in worrying trends in the deficit. Though the deficit last fiscal year was $1.4 trillion, down from the pandemic-era deficits of $3.1 trillion in fiscal 2020 and $2.8 trillion in 2021, we’re heading in the wrong direction again. In the first quarter of this fiscal year, the deficit was $421 billion—or $1.7 trillion on an annualized basis.

The rising interest expense is itself a major contributor to the federal deficit and an underlying driver of the growing debt. It’s a self-perpetuating cycle: Uncle Sam borrows to pay interest, while incurring more interest expense on the new borrowing.

In addition to higher net interest, other items like entitlements continue to expand the deficit. Social Security expenses could rise roughly $100 billion over the next year to accommodate the 8.7% cost-of-living increase for high inflation which began this month.

Congress has long been aware of the impending budget crisis and could have adequately prepared for it….

The House GOP should unite around these legislators and adopt a simple dollar-for-dollar approach, offering Democrats $1 of additional debt capacity for every $1 of domestic spending cuts today—not 10 years from now—leaving Democrats to designate what nonmilitary programs to cut. Should people wonder why defense should be exempt, they need only consider Ukraine today and the possibility of Taiwan tomorrow.

There’s plenty of time before June. Democrats, who unleashed the irresponsible spending in the first place, should immediately begin negotiations within this framework. Should Democrats falter, the credit crisis will be on their hands.

Mr. Jahncke is president of the Connecticut-based Townsend Group International LLC.

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Special Note: While Mr. Jahncke offers decisive information about the snowballing interest on the national debt, his solution, “…offering Democrats $1 of additional debt capacity for every $1 of domestic spending cuts today—not 10 years from now…,” does nothing to reduce the growth of federal deficits, due to the ongoing, compounding interest expenses.

Under the circumstances, America needs a far bolder plan than what Mr. Jahncke is proposing.

America’s Main Street Republicans have a plan which not only eliminates budget deficits, it generates $583 billion budget surpluses during each of the first five years of activation.

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