Government debt vs. Stein’s Law

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Government debt vs. Stein’s Law

Mon, 04/01/2024 - 13:54
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Guest Column
Thomas L. Knapp
Center for Libertarian Advocacy Journalism - Director

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Thomas L. Knapp
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On March 23, the U.S. Senate passed a $1.2 trillion spending bill, presumably bringing an end to months of congressional combat, stopgap measures, etc., by accepting the House version of that bill without amendments that would require renegotiation.

As is usual with big government spending bills, it’s hard to get one’s mind around the total without dividing it by the number of people expected to pick up the tab.

In this case, my rough calculation, based on the round number for the total and the latest estimates of U.S. population is that the U.S. government just ordered every man, woman and child in America (yes, this means you) to cough up about $3,600.

Not all at once, of course. Much of it just will be borrowed and added to the “national debt” -- currently about $35 trillion -- with you as collateral. You didn’t apply for a loan, or co-sign the loan, but when the U.S. government borrows money, it implicitly offers up your future earnings as guarantee of payment.

As I write this, Congress owes its creditors about $35 trillion, leaving you on the hook -- or so they claim, anyway -- for more than $100,000.

And no, they’re not making any effort to pay that debt down. They’re continuing to borrow, and continuing to let the borrowed principal increase even as interest payments on that principal constitute an ever-growing portion of their annual spending.

As economist Herbert Stein noted in 1986, “if something cannot go on forever, it will stop.”

The borrowing can’t go on forever, for two reasons:

First, ever-increasing “debt service” -- payments of interest which never reduce the principal still owed -- will eventually grow to more than the size of any plausible federal budget.

Second, as it becomes more and more clear that that principal will never be honestly repaid (at best, some kind of “trillion-dollar coin” scam might be contrived to screw creditors while supposedly “paying” the bill) and that even paying interest is getting questionable, fewer and fewer potential creditors will be willing to buy U.S. government debt.

The borrowing will end sooner or later. It will end with, at the very least, de facto default, and possibly with the dissolution of the U.S. government as we know it.

On the whole, I think that’s good news along the lines of finally kicking out a housemate who keeps stealing and selling household items to cover his gambling losses.

But make no mistake, most Americans will end up much poorer than we believe ourselves to be at the moment.

When that time comes, make sure you have something in your wallet besides Federal Reserve Notes.

“The full faith and credit” of the U.S. government is only worth the paper it’s printed on because most people still don’t understand that they’re being conned.