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Powell:  It’s past time for an ‘adult conversation’

February 13, 2024 | Member Submitted

Written and submitted by David Vomund

In an interview with CBS’s 60 Minutes Fed Chairman Jerome Powell said, “It’s probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path.”  Let’s have that conversation:

For much of my career people have warned about the rising federal debt.  They said that our children and grandchildren will eventually have to pay the price.  It turns out those were the good old days.  The real debt crisis might be just five to ten years away.  

The U.S. national debt topped $34 trillion in early January.  But that number isn’t helpful.  We just know that $34 trillion is a lot … and debt is growing.

Today’s higher interest rates, which might stay higher for longer, increase the government’s borrowing costs.  Currently, the annualized interest expense on U.S. debt is just over $1 trillion.  But that will increase because bonds that yield next to nothing are maturing and they are being replaced with securities that pay 4 to 5 percent.  Here’s the really scary part:  About half of national debt will roll off in the next three years.  If interest rates remain at current levels then ten years from now the amount of tax individuals pay will only cover the interest payments on the debt.   

Debates over government spending pushed congress into chaos several times in 2023, but the threats of closing the government or defaulting on debt do more harm than good.  That’s because they don’t address entitlements, such as Medicare, Medicaid and Social Security, which equal half of government spending (add another 12 percent for defense spending).

Social Security is projected in ten years to receive in taxes 77 percent of what they will pay out in benefits.  Benefits will have to be cut by 23 percent.  Has Trump or Biden done anything about that?  Nope, and both have vowed to protect the payments.

What about taxes?  Trump says he won’t increase them and Biden says he won’t raise taxes on households making less than $400,000.  Translation:  tax receipts won’t increase by much.  

What about spending?  Both Trump and Biden raised spending (and so did Bush and Obama), which is why debt and deficits worsened during their terms.  The president that enters office in 2029 won’t be able to ignore this issue.

Fed Chair Powell is right that an ‘adult conversation’ is needed.  Unfortunately, that seldom happens in Washington.  

David Vomund is an Incline Village-based Independent Investment Advisor.  Information is found at www.VomundInvestments.com or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.

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