When Bidenomics Shuts Down the Government
The federal government looks more likely than not to temporarily shut down later this year
“I go on the principle that a public debt is a public curse and in a republican government more than in any other.”
James Madison
The next milestone in the illustrious track record of Bidenomics will be a government shutdown later this year. That’s the conclusion the investment bank Goldman Sachs reached in a report to private clients earlier this week. The bank notes that a government shutdown has looked “fairly likely” since the debt limit deal and points to four key culprits for the crisis to come:
Sky-high spending levels;
Massive wealth transfers to Ukraine;
Funding for Justice Department weaponisation; and
Refusal to tighten border security.
Of course, the four culprits share a common denominator: they are all core tenets of Bidenomics.
While the response to Covid represented an unprecedented shift from the previous dynamics in terms of budget deficits and government debt, it is the Biden Regime’s brinkmanship in managing the economy between the twin cliffs of runaway inflation and economic stagnation that set both the US public debt outstanding and budget deficits on explosive trajectories. So, it is up to Congress to throw a spanner in the works of Bidenomics and prevent a further disaster.
As Goldman Sachs points out, “beyond the divide on spending, several policy issues are likely to slow spending legislation and could potentially stall it altogether. The most obvious is funding for Ukraine.”
A new element that Bidenomics introduced at the core of U.S. budget decisions (perhaps inspired by the Biden’s decades-long expertise on dubious deals in the country), Congress has so far approved $113 billion for Ukraine, including $67 billion in military aid, which will run out in the next couple of months, according to the bank’s analysts.
And the Biden White House is seeking a further $24 billion for Ukraine, as part of a larger $40 billion supplemental spending package. Like other types of ‘emergency’ spending, these funds would be exempt from the caps established under the Fiscal Responsibility Act of 2023. The surge in funding for Ukraine flies in the face of popular support, with a recent poll from none other than CNN finding that 55% of Americans are against it:
“Overall, 55% say the US Congress should not authorize additional funding to support Ukraine […] and 51% say that the US has already done enough to help Ukraine.”
On the domestic front, House Judiciary Committee Chairman Jim Jordan (R-OH) has recently written a letter to the House Appropriations Committee with common-sense recommendations to reduce spending, constrain out-of-control federal agencies, hold the Biden Administration accountable, and protect fundamental civil liberties:
Immigration enforcement and border security. The Committee recommends prohibiting taxpayer dollars from being used to implement the Biden Administration’s radical immigration policies.
Reining in abusive federal law enforcement agencies. [The Committee] recommend that the appropriations bills eliminate any funding for the FBI that is not absolutely essential for the agency to execute its mission.
Protecting Freedom of Speech online. [The Committee] request language in fiscal year 2024 appropriations bills prohibiting taxpayer funds from being used to censor Americans online or to classify speech as so-called ‘mis-, dis-, or mal-information.’ [and] eliminate taxpayer dollars going to the Global Engagement Center and other governmental and non-governmental entities that are engaged in speech suppression.
Goldman Sachs, rightly so, identifies the Republican requests for increased border security, ceasing the weaponisation of the DoJ, and protecting free speech as issues that “could hinder progress” when it comes to budget and fiscal policies underpinning Bidenomics.
The Bidenomics Downgrade
“For every tree is known by its fruit. For men do not gather figs from thorns; nor from a bramble bush do they gather the grape.”
Luke 6:44
Earlier this month, Bidenomics earned yet another shiny new milestone: Biden’s erratic fiscal policy was awarded the dubious honour of only the second downgrade to the U.S. debt credit rating in the nation's 247-year history. The other downgrade was achieved by its older sibling, Obamanomics, in 2011. Commenting on the downgrade, the House Committee on the Budget outlines the rationale behind Fitch Ratings’ decision:
“Spending and debt is unsustainable; interest costs are out of control; inflation and interest rate hikes have weakened our economy; we will be in recession by the end of the year; the fiscal outlook only gets worse; our debt-to-GDP has hurt U.S.’s ability to absorb a major financial shock in the future; and if we don’t change course, the U.S. will not only incur another credit downgrade, we will undermine the dollar as the global reserve currency.”
This downgrade sees the US economy exit the club of top-rated economies in the world to join the ranks of New Zealand, Taiwan, and Finland. This demotion will inevitably lead to higher interest rates and borrowing costs in the future.
In their report, Fitch laments the “erosion of governance” over the past 20 years, especially concerning fiscal and debt matters. This decline has been exacerbated by the repeated debt-limit political standoffs and eleventh-hour resolutions. In their view, the Biden Regime lacks a medium-term fiscal framework to effectively address these challenges.
They also highlight the rising general government deficits, at 6.3% of GDP in 2023, up from 3.7% in 2022.With the increase reflecting “cyclically weaker federal revenues, new spending initiatives, and a mounting interest burden.” They do not anticipate any significant improvement measures ahead of the November 2024 elections.
Fitch projects the US Government’s debt-to-GDP ratio to escalate over to 118.4% by 2025, more than two and a half times higher than the median of 39.3% of GDP among the top-rated countries. Fitch’s long-term forecasts predict further rises in the debt/GDP ratio, increasing the vulnerability of the U.S.'s fiscal position to future economic shocks.
U.S. Dollar Losing Currency
“Nobody knows how far a paper currency can be pushed before spiraling out of control, especially if it’s the world’s reserve currency.”
Warren Buffett
Even with the blunders of Bidenomics, the renewed speculation about a fabled de-dollarisation shouldn’t be taken seriously, at least not in the short to medium term. The US still boasts the world’s deepest and most liquid financial markets, the largest and most diversified economy, and projects power like no other country can even imagine.
If the US Dollar were to lose its role as the dominant international currency, it could take several decades for this scenario to unfold; and we would witness plenty of signs that indicate whether this longer-term trend is genuinely materialising.
One-in-a-hundred-year events, such as the US defaulting on its debt, could be catastrophic. And we should never underestimate Biden’s ability to shoot the country in the foot. Even more grave than failing to implement responsible policies that could gradually reduce the role of the US Dollar, a default could be a tipping-point event from which the US Dollar might never recover.
Yet, only a few months ago, Bidenomics brought the country to the brink of it. Ignoring the warnings, the Biden Regime is once again leading the nation towards Default Town, with a stop on Government Shutdown station.
The fear of default is fuelled by reckless spending that has inflated the US debt to $90k per capita, compared to a $70k per capita income. This same reckless spending has also led to once-in-a-generation inflation. Thus, we don’t need to look beyond US borders to discern the reasons that could inch us closer to the fall of the US Dollar.
The silver lining is that no viable alternatives to the US Dollar currently exist. China has a huge economy, which is a sine qua non condition to run a major reserve currency. But if it were to promote the globalisation of the Yuan, China would have to emulate the properties that enable the US Dollar to serve as the international currency and global financing vehicle: it would need to introduce convertibility, abolish capital controls, and permit a buildup in Yuan claims. This likely means that China would have to be prepared to run trade deficits.
The irony here is that the measures China would have to take for the Yuan to become the global currency are the same ones that could potentially undermine the Yuan’s strength in the first place.
Even if the BRICS countries’ plans to eventually settle a minor portion of their trade in Chinese currency succeed, there is scant evidence they will maintain it as a reserve currency. The primary obstacle is one of trust. For a currency to retain value, it must inspire confidence from holders, both private and sovereign, that they can access and expend their funds during good times and bad. This assurance has been the hallmark of the US Dollar as the reserve currency. And nobody can state with a straight face that they believe China can guarantee that.
In Bidenomics We Don’t Trust
That said, there’s little doubt that the success of Bidenomics is intimately connected to the failure of the US Dollar. Even if the government shutdown is not a foregone conclusion, and the timing remains uncertain, Bidenomics has already proven to be a formidable threat to US sovereignty. In just two and a half years, it has achieved some notable milestones:
Record budget deficit;
Record debt levels;
Record inflation;
Near-bankrupting the US Treasury; and
Downgrade of the US credit rating.
Since the ‘90s, there have been four occasions when the government was shut down for more than a day, not to mention the close calls where a last-minute deal reversed course. So, it’s not such a rare event. The problem now is that past shutdowns were often the product of government policies that faltered, whereas under Bidenomics, they result from government policies functioning exactly as intended. It’s more of a feature than a bug.
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Excellent article. It really hits on where things are heading.