Kamala Harris’ Same Old, Same Old—Tax And Tax, Spend And Spend

When it comes to fiscal policy and the very solvency of the Republic, it cannot be gainsaid that the two wings of the UniParty are in a race to the bottom.

We say that because according to CBO’s most recent Rosy Scenario-based forecast, current spending and tax policies will generate another $22 trillion of public debt over the next decade, and that’s assuming no recession ever again; and also that inflation settles down to 2% and stays there and that the weighted average yield on the Treasury debt outstanding averages barely 3.5% over the next decade. Fat chance of all of that, of course.

So add a little red ink windage for likely economic setbacks and in round numbers both candidates face a built-in 10-year budget window that takes the public debt to $61 trillion by 2034. The implication is that some fairly stern fiscal consolidation plans should be on the table and up for debate during the campaign.

Alas, not at all. According to the latest analysis by our friends at the Committee for a Responsible Budget (sic), Kamala has tabled spending increase and tax cut plans that will generate another $7.25 trillion of red ink over the coming decade, while the Donald—never to be outdone—has proposed that Uncle Sam borrow an additional $10. 20 trillion on top of the massive flow of deficits already built-in.

Needless to say, this state of affairs is nothing short of wanton negligence. It’s a measure of the degree to which the Fed’s massive monetization of the debt and artificial suppression of interest rates have turned Washington into a fiscal fantasy-land where the overwhelming UniParty consensus amounts to “deficits don’t matter”, whether they actually say it out loud or not.

After all, the yield on government bonds is the price signal to politicians. Back in the day, that signal was described as the work of the bond vigilantes. Especially when yields soared why above prevailing inflation levels the resulting “crowding out” of borrowers back home caused powerful constituent pressures to curtail government borrowing. Effectively, market-driven bond yields generated countervailing political forces against the inherent inclination of politicians to borrow and spend.

During the last several decades but especially since the so-called Great Financial Crisis, the Fed has essentially snuffed out the bond vigilantes, meaning that the deficits-don’t-matter forces in both parties have had a field day. Yet now that the yield on the 10-year Treasury note has become slightly positive, the Fed has already commenced another rate cutting cycle, thereby unleashing the borrowing impulses throughout the UniParty. Hence the massive red ink proposed by both Harris and Trump are fully explainable.

Inflation-Adjusted Yield In 10-Year US Treasury Note, 2007 to 2024

Piling even more debt on Uncle Sam’s staggering balance sheet is absurd, of course. The surest way to destroy both capitalist prosperity and constitutional liberty is via debauching the public credit. It inevitably leads to severe inflation, soaring interest rates, onerous barriers to private capital formation, investment, productivity gains and main street economic function. Eventually, in turn, that brings economic populists and demagogues to power in the halls of government, curtailment of property rights and personal liberty, and even more counter-productive interference in economic life by the regulatory, tax, spending central banking arms of the state.