The Debt-Driven U.S. Economy. Where To Next?
As CapEx goes, so goes the economy. Yet, CapEx doesn’t simply spike at random points. Companies - in fact entire economies - increase CapEx when fiscal and monetary conditions are loose. Fiscal spending has become the tail that wags the dog. Since 2008, U.S. economic growth depends upon Government largesse. Large fiscal deficits and low interest rates fuel the debt-funded U.S. economy. One can observe this in the chart below. Increases in Treasury debt (red line) lead to increases in CapEx (blue line) and increases in Real GDP (green line). What will CapEx and GDP look like in 2024? That’s a trick question. The question is: what will fiscal deficit spending look like in 2024?
The blue line represents the year-over-year percentage change in CapEx at quarterly observations.
The green line represents the year-over-year percentage change in Real GDP at quarterly observations.
The red line represents the year-over-year percentage change in Treasury Debt at quarterly observations.
There is a way for the United States to kick its debt addiction:
Eliminate entitlements, thereby saving 62 cents of every Dollar the Federal Government spends. For example, the fact that the IRS was paying out Treasury funds to small and mid-sized businesses from mid-2020 through September 2023 (the Employee Retention Credit, which was a taxpayer-funded cash windfall to many businesses with 500 employees or less) was outrageous. The ERC sent almost $30,000 per employee to businesses owners in an effort to assist with the COVID fallout. Are you kidding? Government has no business in the private sector. The ERC was yet another Federal Government scam by which Government officials paid friends and family and bought constituent votes with constituent money. Both political parties were guilty of this corruption. Debt-funded programs such as the ERC directly led to the inflation the U.S. suffers from today. All the while Treasury Debt has grown from $23.3 Trillion in Q1 2020 to $34.6 Trillion today. The Federal Government will absolutely default on its debt at some point (as the fiat Dollar becomes worthless). It is only a question of when. There is no magic elixir.
Outsource large chunks of Government to the private sector. If Biden does not want to deal with military aggressors (the Houthis for example), hire a PMC to smash them. The local airport is costing a state too much? Great, sell it off to private equity. Same goes for money-losing, debt-expanding public transportation.
Shrink or eliminate Federal Agencies. End the Fed. Radically shrink the FDA. End the EPA. Radically shrink the IRS, FBI, CIA, DHS. End the DOJ.