Debt Service and Mick Mulveney
People are talking about the huge deficit Trump’s new budget will create and what that will do to the overall deficit. The stock market tanked recently when there were fears that inflation was returning and the Fed would raise interest rates higher and more quickly. So far, nobody is talking about what happens when these two things come together. A huge public debt and high interest rates mean that paying interest on the debt will take up a bigger and bigger piece of the federal budget, leaving less money for everything from the military to medicare. It’s a problem that only gets worse. Higher debt means investors from pension funds to the Chinese government will be less willing to buy US bonds, and that will mean the government will have to pay higher interest to get people to buy them.
Mick Mulveney, Trump’s Director of the Office of Management and Budget (OMB), is the man who is supposed to keep the budget under control. I worry that he will follow in the footsteps of his predecessor in the Reagan administration, David Stockman. Stockman and his Republican colleagues encouraged Reagan to cut taxes deeply. Their idea was that once taxes were cut, there would be no money to fund the liberal programs, like Medicare and food stamps, that they disliked. However, Stockman misjudged Reagan. When push came to shove, Reagan was unwilling to cut these programs that helped poor and ordinary people. Reagan was too soft-hearted for Stockman. As a result, Reagan cut taxes, but not spending, leading to huge deficits and the federal debt that we face today.
It now looks like, not only Trump, but the entire Republican party (except for Rand Paul) has followed in Reagan’s footsteps and ceased to worry about unfunded government spending and the deficits and increased debit that it brings. Stockman has gone on to make millions in New York, but so has Donald Trump. Nobody knows what the mplications are of this debt load, because there has never been anything like it before. What it brings for smaller nations who have less control over financial markets is usually austerity and recession to pay for the years of carefree spending. We’ll see if the US profligacy will end any better will end any better than it has for other nations.
One example that worries me, given the important role of Jews in the US government and the financial sector, is Germany between the world wars. Germany found itself in terrible financial straits after World War I. It could not pay the huge debts it had incurred to finance the war. It printed money and inflation became rampant. At that time Jews became very prominent in German business and financial affairs. One study reports that
In the early 20th century, a dense corporate network was created among large German corporations, with about 16 percent of the members of this corporate network of Jewish background. At the centre of the network (big linkers) about 25 percent were Jewish. The percentage of Jews in the general population was less than one percent in 1914.
This outsized influence of Jewish businessmen and bankers enabled Hitler to blame the Jews for many of the hardships the average German population was experiencing in the 1930s. It influenced many average Germans to accept his increasing persecution of Jews. Let us hope that America does not end up like Germany, with Jews presiding over a failing country that cannot pay its debts. Chuck Schumer, Steve Mnuchin, Gary Cohn, Michael Bloomberg, Lloyd Blankfein, Larry Fink, Larry Ellison, Sergey Brin, Mark Zuckerberg and company would do well to help America get its financial house in order,