Not Rosie The Riveter’s Time, Part 1

This is getting downright ludicrous. The bubblevision screen crawlers this AM blared “Biden to slash Federal deficit” by $3 trillion over the next decade.

Well, yes, Sleepy Joe’s lame excuse for a fiscal blueprint would reduce prospective red ink over FY 2023 to FY 2033 from $21.6 trillion under the baseline to his proposed $18.6 trillion. And he gets a trophy for the $3 trillion math difference?!

Actually, the White House’s new budget would increase the debt-to-GDP ratio from an already crushing 98% at the end of 2023 to 110% by 2033. The latter, of course, nearly exceeds the record set during WWII when the US economy was on a war-footing, all consumer goods were scarce and rationed and Rosie the Riveter had nothing to do with her war factory paychecks except to buy government war bonds.

But it is the internals of the Biden budget that really make your hair stand. The 10-year budget would spend the staggering sum of $10.2 trillion on debt service alone—more than cumulative outlays for defense or Medicare over the same time period.  And that assumes—laughably—that the 10-year UST yield peaks at 3.9% this year before falling to 3.5% in the back part of the budget window.

For crying out loud, the 10-year UST already touched 4.0% earlier this week! Yet inflation has remained stubbornly high and Powell has clearly indicated that the Fed is not close to done raising rates. Once again, the inflation-adjusted yield on the benchmark treasury security is still -3.0%, meaning that nominal rates will need to rise to 6%, 7% or even 8% in order to bring inflation to heel.

In short, the debt service projection itself is way short of the mark, and that’s to say nothing of the monkey business in the rest of the budget that puts a heavy layer of lipstick on what is still a fiscal pig.

For instance, the Biden plan includes an extra $2.8 trillion for child care, housing, higher education, healthcare, tax breaks for workers and sundry others. And that’s on top of the $70 trillion+ for non-interest spending already built into the baseline.

To make the plan look slightly less outrageous, therefore, it raises taxes on corporations and households with incomes above $400,000 by $5.0 trillion to off-set the new spending and contribute to its claimed $3 trillion deficit reduction. Most of the balance of the latter, of course, is pie-in-the-sky reforms and interest savings that haven’t a snowball’s chance in the hot place of actually materializing.