?National Debt?

The secret “country killer” is and always has been debt. Countries with wanton disregard for fiscal responsibility always get slammed, sooner or later. Argentina is the poster child for politicians’ approving populist programs the country cannot afford that decimate their currency. They are constantly knocking at the door of the International Monetary Fund (IMF) looking for loans. Argentina's newly elected President Javier Milei is telling constituents to prepare for an extended period of government austerity, also suggesting that the nation abandon its currency in favor of the US dollar. That move is intended to rein in the country's 143% inflation rate, the highest in decades. But that still does not address the spending and taxation habits that caused the problem.

Countries around the world, unable to fund their nation’s needs, often watch their currencies dwindle into oblivion. The Lebanese pound, once one of most stable currencies on earth, hovers above worthless. After World War I, the French pushed for a most punitive set of confiscations and reparations against loser Germany (Treaty of Versailles) such that the German mark became almost worthless. It was this devaluation, imposing a very harsh existence for German citizens, that allowed Adolph Hitler to rise to power, fomenting WWII. But sometimes national debt represents a choice, even when the ability timely to pay the government bills is clearly doable.

The US massive national debt, heading towards $34 billion (one third of which is in foreign governmental hands), is completely a matter of choice. We’d rather look away from our staggering level of wealth/income inequality, incur borrowings that are spread to all Americans, to keep taxes for the richest in the land low. Except in transition (death or sale), we do not tax wealth outside of local real estate property taxes. In 2017, a MAGA controlled Congress dropped the federal corporate tax rate from 35% to 21%, rapidly adding several trillion dollars to the deficit.

We too pay a price for this heavy playing field tilt in favor of the wealthiest in the land. Indeed, MAGA Republicans push the only solution to our national debt is to cut spending on programs that benefit most Americans to keep taxes on very few mega-rich Americans abnormally low. We’ve long since established that cutting taxes for the rich is not a job creator… and never has been. They use misnomers like “entitlements” and “creeping socialism” to bolster their position.

There are clear signs that the world is beginning to question this longstanding American federal practice of unending borrowing. As MAGA Republicans have recently established a pattern of brinkmanship in their efforts to cut spending while keeping taxes on the richest abnormally low, global investors and foreign governments are now questioning whether the United States is politically sufficiently stable to justify the federal debt. Ratings agencies have even downgraded our national credit rating, increasing the interest we must pay on that deficit. Writing for the December 13th Wall Street Journal, Eric Wallerstein, sensed increasing reluctance in the usual buyers of US debt in the latest effort of the US Treasury to put a combined $108 billion of 3-year, 10-year and 30-year bonds on the auction block on December 11th and 12th, along with $213 billion of shorter-term bills, although our getting inflation under control did help keep interest rates from rising:

“[These] auctions started off shaky, but ended up soothing some of Wall Street’s fear that demand for U.S. debt isn’t strong enough to finance the waves of bonds hitting the market. Encouraging inflation data may have helped spark a newfound appetite for long-term Treasurys, serving as a reminder that the amount of bond supply from Washington is just one thing investors care about. The macroeconomy matters a lot, too… There was fairly weak demand for the new 3- and 10-year Treasury bonds that hit the street on [December 11th]. That’s been a trend we’ve seen recently: Investors are requiring higher rates to finance the U.S. government.”

There’s international mumbling about why the primary reserve currency remains the US dollar (the metric for most global commodities trading). As the US continues to provide the financial platforms and coordinated bank formats (e.g. Swift codes) for most global trade, hostile nations like Russia and China are beginning to create alternative structures which severely lessens the impact of international sanctions against these rogue nations. And despite her own internal debt woes, China remains in the best position to challenge US trade supremacy, owing an increasing debt of gratitude to MAGA Republicans for their help along the way. Writing for the December 13th Wall Street Journal, Matt Wirz ands Alexander Saeedy explain:

“China is upending how the international financial system handles debt crises in the developing world. Wall Street isn’t happy… Large bond fund managers cried foul last month when China blocked their deal to salvage investments in defaulted Zambian debt. The smackdown came just weeks after Chinese officials brokered a private debt restructuring with Sri Lanka, outmaneuvering Western governments that were trying to do the same.

“China can set its own rules because it has become the biggest lender to developing countries, outweighing Western powers that dominated such matters for more than 50 years. The new reality is rankling the old guard and making debt crises around the world longer and harder to predict… ‘If you’re hoping for a quick restructuring at a reasonable pace, that’s not going to happen,’ said Michael Cirami, a bond-fund manager for Boston-based Artisan Partners EMsights Capital Group.

“Western governments, investment firms and the International Monetary Fund have long decided how emerging-market debt gets overhauled, using a mix of formal rules and backroom deals. But China lent $1 trillion to countries in Africa, Asia and Latin America to bolster its global influence over the past decade and now many of the loans are going bad.

“Longer restructuring negotiations prolong economic pain for borrower countries and their citizens. They also lower recoveries for bond funds, which don’t collect interest payments while debt is in default... So far, the restructurings have involved small countries, including Ghana and Ethiopia. Larger nations, with greater geopolitical import—such as Argentina and Pakistan—could be next… ‘If we don’t manage the [restructuring] paradigm shift well, we can move onto very dangerous ground,’ said Pierre Cailleteau, a managing director at Lazard, the investment bank advising Sri Lanka, Suriname, Zambia and others in negotiations with lenders.”

With about $700 billion in annual Sino-American trade, there are a few checks and balances on China’s clear efforts to displace the US financial systems in the global trade. But MAGA policies, particularly a vector to pull the US out of international obligations and treaties (which have sheltered and advanced our financial supremacy), have begun to cast a rising tide of negativity against our trade superiority. If we lose our reserve currency status, if we find resistance in the international markets when we attempt to place our national borrowing into the international markets, the US consumer market with pay a very heavy price, as our standard of living will begin to plummet.

I’m Peter Dekom, and as MAGA policies, designed to appeal to an unsophisticated anti-government constituency, begin to tank our average quality of life, I’m those MAGA politicians will find someone else to place for their failed initiatives.