Thank you!
Your support is sustaining the future of local news in our communities.

The national debt — get ready!

What, exactly, is the national debt? U.S. federal debt is basically two parts: one held by the public and the other intra-governmental debt (mostly Social Security’s money, which the government has always borrowed against and then claimed that Social Security is going broke because they borrowed all the money at near zero interest rate).  

As of May, total debt held by the public was $19.8 trillion, and intra-governmental debt was another $6 trillion. In the media and politicians’ utterances, these two amounts are lumped together, but they should be treated separately. The interest paid on debt held by the public is paid by the Treasury in the form of real interest to the owners of that debt. The interest paid on intra-governmental debt money the federal government pays itself and doesn’t ever really refund Social Security.

The combination of trillions more in federal debt from higher spending and lower tax receipts this year and next (think COVID-19) and the probability that there will be future federal spending to better prepare for pandemics raise my blood pressure. Governments have, traditionally, only ever repaid debt by bringing back inflation. Basically, it goes like this: I borrow $100 from you at 5% interest. If I bring back inflation that $100 is now worth less and also with inflation everyone needs more income (pay) so salaries rise and people pay more dollars in tax — even if the dollars are worth less. I then can pay you back $100, which may now only be worth the buying power of $50. Nixon did this, Reagan+Bush did this, Clinton took the credit… and on and on.

Look, this is not complicated. A house is a house, right? A house off Park Avenue on 95th Street cost $1,200 to buy in 1935, $35,000 to buy in 1950, $1,200,000 in 1990 and $3,000,000-plus this year. A house in upper New York state cost $3,500 in 1975, $35,000 in 1989 and $650,000 in 2007. The property didn’t change; the value of the dollar did with inflation.

In the defense industry they are worried that their future money needs won’t be met. “Flat” was already the new budget “up,” but “flat” now may be a budget that does not keep pace with annual inflation. Their fears are well founded that defense spending will decline in the 2020s after a couple of good years of largess from pre-2019 Congress and the White House.

Ah, but, people say, there is a silver lining to this cloud: The interest rate on the federal debt is low. The Federal Reserve’s aggressive lowering of interest rates makes federal debt more affordable, just the same as a lower interest rate on a home mortgage can make a place to live more affordable. The Office of Management and Budget (OMB) keeps the figures on all this and projected, in February, the interest would only add about $300,000,000,000 to the debt next year. COVID has chucked all those projections out the window.

The outcome of the pandemic will be to make all OMB expectations more sensitive to interest rate expectations. With rising debt and interest rates set to increase to more “normal” levels, the unthinkable “inflation” is already appearing on long-term projections — especially in the defense world. And, remember, any one major military conflict, or huge natural disaster or another economic contraction (which Wall Street is expecting) could further add to federal debt in the 2020s.

The rate on a 90-day treasury bill is currently 0.13%. On a five-year note, it is 0.33%, and on the 10-year note, 0.69%. The 30-year note rate is 1.4%. Already the OMB and the administration are hinting that next year’s budget (March 2021) will reflect probably higher interest rates and a cap, certainly, on defense spending. Once the interest rates climb, you will see inflation return and, given six-plus years, the debt can miraculously be paid down. Of course, none of that has anything to do with real prosperity for the working woman and man — in fact, quite the opposite since there’s always a gap in real value from income when inflation returns.

 

Peter Riva, a former resident of Amenia Union, now resides in New Mexico.

The views expressed here are not necessarily those of The Millerton News and The News does not support or oppose candidates for public office.

Latest News

Benjamin Franklin’s glass armonica comes to the Berkshire Opera Festival

Dennis James plays the glass armonica in Colonial costume.

Dennis James

In the early 1760s, Benjamin Franklin was one of the most popular people in the world. The writer, printer, inventor and electricity pioneer was known throughout the British Colonies in America, as well as in Europe, as a respected intellectual and diplomat. While we know him as one of the Founding Fathers of the United States, he spent almost a third of his life in Europe. Eight of those years were spent in France, working to secure support from the French military during the Revolutionary War. But before that, he spent 18 years in England as a diplomatic representative from the colonies.

It was during that time when Franklin first witnessed a musician play a series of glass bowls by wetting his fingers and drawing them across the bowls’ rims. The sound was haunting and otherworldly — like nothing he, nor anyone else, had ever heard before. But as Franklin was transfixed by the sound, he saw what many great innovators see when witnessing something new: inefficiencies. The musician was moving all over the place, working far too hard to make these angelic sounds. So Franklin went about fixing the problem.

Keep ReadingShow less
More than movies: Jeremy Boviard found his calling at The Moviehouse

Jeremy Boviard, General Manager at the Moviehouse in Millerton.

Annette Stover
There’s something special about sharing a story in a room full of other people.
— Jeremy Boviard

Spend a few minutes talking with Jeremy Boviard about movies and you’re likely to forget what time it is.

Ask about a favorite film and he’ll happily explain the first time he saw it, how it was made and why it matters. One story leads to another. His enthusiasm is infectious. For Boviard, movies are far more than entertainment – they’re one of the best ways people connect.

Keep ReadingShow less
google preferred source

Want more of our stories on Google? Click here to make us a Preferred Source.

The mycelial web of nature, creativity, science and magic at Berkshire Mushroom Festival

Presenters at the 2025 Berkshire Mushroom Festival.

Daniel Shankin

“Mycelium is Earth’s natural Internet,” says mycologist Paul Stamets. He also calls fungi “the grand recyclers of the planet” and says, “Fungi are the interface organisms between life and death.”

If that sounds like a pretty good argument for paying more attention to what’s happening under your feet, the Berkshire Mushroom Festival is hosting a weekend made for you.

Keep ReadingShow less
From grave to stage: “Zombie Prom” lights up the Sharon Playhouse

(From L to R) Jakob Kerr-Lucero (Jake), Charlotte Wise (Candy), Richie Crane (Joey), Brianna Vivace (Coco), and Vivian Burnham (Stage Manager) in rehearsal for Sharon Playhouse’s “Zombie Prom.”

Michael Kevin Baldwin

Jonny is dead. He’s also still dating Toffee. And he has every intention of making it to the prom.

That’s the basic problem at the heart of “Zombie Prom,” the gloriously campy musical comedy coming to the Sharon Playhouse Aug. 21-23.

Keep ReadingShow less
google preferred source

Want more of our stories on Google? Click here to make us a Preferred Source.

google preferred source

Want more of our stories on Google? Click here to make us a Preferred Source.