[ANALYSIS and OPINION]
Does the American public truly believe in democracy? What price is it willing to pay? What is the average American willing to sacrifice to preserve our Constitutional principles of three co-equal branches of representative government and the fundamental Freedoms found in the Bill of Rights? Due Process, Equal Protection, Free Speech, and all such rights will be on the line in the coming years. And this testing of America will start with the mid-term elections of 2022 and probably continue until at least 2024, if not beyond.
Here’s why there’s great cause for worry. To take a prime example, the Weimar Republic in Germany in the 1930s turned to Adolph Hitler, largely because of the outrageous amounts of inflation that the German people encountered as a result of the Great Depression (a worldwide phenomenon) and the war reparations imposed on Germany by the Treaty of Versailles to end World War I. One figure we saw (brittanica.com) was the hyper-inflationary figure of 700 percent, perhaps even more at times.
And if one doesn’t believe that something like the rise of an Adolph Hitler cannot happen in the United States, one need only look at the events of January 6, 2020 with its pictures of nooses hanging on scaffolds and a mob breaking into the Capitol and the events in Charlottesville to know that it can. Americans, sadly, are just as susceptible to succumbing to their baser instincts as anyone else. And what’s scary is that American’s have not been nearly as severely tested as the Germans were in the 1920s and 30s. Nevertheless we already see the rise of the Alt-Right along with the conspiracy theories that usually support their causes.
What makes it tempting for many to seek an authoritarian solution our nation’s problems is that there are many huge challenges that the United States and the rest of the World face, all at a time when there seems to be tremendous disagreement, hyper-political partisanship and thus governmental gridlock on how to tackle many of these crucial issues. And, what adds to this worrisome state of affairs is that the federal government may have fewer tools to address many of these problems than in the past. This is largely because of budgetary and monetary constraints.
The United States is now, for the first time in decades being hit by significant levels of inflation—meaning that a dollar does not buy as much today as it did yesterday. Everyone’s standard of living is likely to suffer. For some, especially the poor, the elderly, the disabled and anyone on fixed income, they are likely to face the constant fear that they may suffer foreclosure, eviction, lack of access to medications, healthcare, decent housing and the like in the near future. Getting to work will cost much more. Fewer trips to the movies. Even basic food budgets will be stretched to the limits for the less fortunate. Why? The war in Ukraine is a most recent and important cause. This is because both Russian gas and Ukrainian wheat supplies are being significantly curtailed thereby causing significantly higher gas and food prices. But there are always other hotspots as well, and right now Taiwan and probably the Middle East top that list, but there are other problem regions as well. We mention the Taiwan/China situation because our trade and political relationship with China is critically important because our economy is in so many ways tied to our relationship with China. Regarding the Middle East, here again oil supplies and oil prices very much depend on what happens in the Middle East. Moreover, it should be noted that Covid and its affect on supply chains has also been a contributing cause of inflation as well. But the point is that people who are economically at wit’s end tend to be susceptible to be seduced by the lure of demagoguery. Would-be leaders who tell people what they want to hear, regardless of whether it is true, or whether they have the ability to deliver what they promise—and worse, merely want power to do as they wish in their own self-interest.
Let’s take an example of one serious problem our country and the World face. This is a problem so serious that it alone could be a cause of future global conflict–global warming. We don’t intend to address in detail the climate challenges here but merely seek to point out one very important problem whose solutions may be impeded or severely curtained because of inflation and federal budgetary issues.
[Deniers of this existential problem would argue that global warming doesn’t cause the melting of the polar ice caps but the vast majority of scientific experts believe that global warming is real. As such, we will assume that global warming is something that requires substantial efforts by mankind to address.]
To take an example, most experts would probably say that global warming causes ocean levels to rise. And facts seem to support them. Artic areas which were once non-navigable due to being frozen over can now be sailed by ocean going vessels. Just recently, the U.S. Marine Corps announced that it is considering shuttering famed Parris Island (where a large percentage of its new recruits are put through basic training). It is considering closure of this important training facility because rising ocean levels are inundating it. Flood walls, water pumps, cracked foundations etc are expensive. And, one might add, so is buying new property to build on and move to.
Elsewhere, global warming is very probably also responsible for much of the more severe weather being experienced in many regions of the World including the U.S. The Western states are suffering from drought and water shortages in many areas. Venerable Lake Meade is going dry. The public needs water to drink that is no longer available in unlimited supply. Vast wild fires wipe out homes, excessive heat overtaxes power grids.
And the worst part is, that the consequences of global warming are only beginning to be felt and will get worse—the biggest question being how quickly and how badly it will be felt. Population dislocation and problems associated with water shortages, fire and coastal flooding will all severely stretch, already overstretched, pockets books of the federal, state and local governments. One cannot help but to wonder the effect it will have on insurance companies, banks who’ve underwritten real estate loans in affected areas and of course, people. How much homelessness will it cause? How many bankruptcies will it cause? A very worrisome aspect of this is that addressing these problems will be very difficult, if not impossible because of inflation and the level of debt the federal government already has.
Here’s what we said in our most recent student loan forgiveness article about just one big federal budget issue (and there are many more):
….. [B]udget deficits have to be financed by further government borrowing, which usually causes increases in interest rates and/or the money supply, both of which are, more often than not, inflationary.
In this regard, it is important to note that today’s money supply (M2) is more than four times what it was in the year 2000, whereas during that same time period Gross Domestic Product (GDP) increased by a factor of only 2.3 (from $10.25 to $23.6 Trillion). Moreover, the U.S population increased by only 19 % during that same period. This means that there are many more dollars in print today per person and per dollar of goods and services produced than there were back in 2000. Why we haven’t experienced more inflation than we have is subject to debate, but the point is that traditionally that kind of money supply increase would be highly inflationary and it may be that it is only now that we are seeing inflation rear its ugly head.
The significance of the above is that anything that costs the government money to fix is very likely make inflation worse thus creating the snowball effect of making everyone’s cost of living skyrocket even faster. That is, unless all additional government spending on fighting climate change is paid for by increasing taxes, which again would eat into everyone’s pocketbook and diminish their standard of living In this regard, in that same article we said:
The national debt according to US Debt Clock.org is about $30.4 trillion [excluding unfunded obligations]. [This figure represents] the sum of all annual [federal] budgetary deficits less budget surpluses since [the government] began counting. …
What makes the present federal debt situation so alarming is that total federal debt [even when excluding “unfunded” future federal obligations like Medicare and Social Security, which are also gigantic] is currently [1.29] times [ or 129%] of this country’s Gross Domestic Product (GDP). This is much higher than it historically has been. All of which is to say that the federal government is already in a position where it will be forced to do more borrowing than it historically has done well into the future.
In fact, if the unfunded federal obligations referenced above are taken into account the federal budget is in even a bigger mess, because if they are taken into account the total federal debt rises to over $94 Trillion which is about 4.5 times present U.S Gross Domestic Product.
What does all of this mean? In essence, this means that all Americans would have to work for 4.5 years and pay nothing else (no defense spending, no Social Security checks, no Medicare, etc) except principal and interest on the national debt before all federal debt could be paid. {And what about food etc?) And to top all of this off, as bigger deficits and more borrowing occurs and as interest rates go up, the interest rate paid on federal debt (T-bills and Treasury Bonds) will also go up, making each federally borrowed dollar more and more expensive. And, of course, ultimately taxpayers have to pay for all of this increased cost.
To make matters worse, the above doesn’t even take into account considerations like the sustainability of the size of the defense budget, the birth rate, an aging population (and their affects on Medicare, Medicaid and and the financial viability of Social Security) and/or whether immigration is needed to support any or all of the these matters etc. However, it’s clear that all of these are very contentious issues. Thus, when one considers these issues there is indeed cause for concern if not alarm.
We will leave for another day a discussion of some of the other areas where budgetary constraints could very well play bigger role than most people think. However, one cannot but conclude by noting that enlightening objective coverage of budget issues by the traditional media leaves much to be desired.
David Dixon Lentz May 29, 2022
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