I enjoy Terence Jeffrey’s columns on government spending.  They are high level.  Sometimes he doesn’t even offer his opinions.  He let’s the facts speak for themselves.

In one of his recent columns, he announced that the federal debt just surpassed $26 trillion.  He pointed out that the national debt increased $2 trillion in just 63 days.

He shows a fascinating chart showing the time elapsed between each trillion dollars in debt. He starts at the $5 trillion mark, which happened in 1996.  It took about 6 years to hit $6 trillion in 2002.

From September 2008 to March 2009, it took just 6 months to go from $10 trillion to $11 trillion. It slowed down a little bit after that.  It was already speeding up again in 2019 (pre coronavirus lockdowns).  Now it is going parabolic.

The national debt is increasing by $1 trillion nearly every month.  This is obviously unsustainable unless we go to hyperinflation. Still, the ramifications will be great.

I always say that we should pay more attention to government spending than government taxation. This has never been more true. The Fed has increased its balance sheet by $3 trillion since February. It is still going up, although at a much slower pace.  It is mostly the Fed buying up all of this new debt.

The debt doesn’t just hurt future generations.  It hurts us here and now.  Not everyone is feeling the pain yet, but it’s important to understand that the government is consuming all of these resources.  Some of it is pure redistribution, especially when it comes to direct payments in the form of “stimulus”.

Every dollar spent by the government has to come from taxes or debt or inflation, or some combination of these things.  The government rarely sells government assets, so I am not including this as a possible way of funding.

We are going to see a significant decline in living standards.  The government is simply confiscating a massive amount of resources.  It is going to play out in the form of lower real wages.  I don’t know if nominal wages will actually go down, but the wages that people earn will buy less than before, at least for most people.

Federal government spending cannot be controlled.  It doesn’t matter who is elected president.  It doesn’t matter which party has a majority in Congress. Americans will say in opinion polls that they oppose the deficit spending, but they don’t really mean it. They only oppose it as long as it isn’t their favorite programs being cut.  And a majority of Americans seem to be in favor of stimulus checks, which are purely funded through larger deficits.

The only thing that is going to stop this is limits to the Federal Reserve’s monetary inflation. It doesn’t seem like there are any limits on the Fed, and technically there aren’t.  But if price inflation gets bad for consumers, the Fed may actually start taking some of the blame.  I don’t think Fed officials want to lose complete control. They don’t want complete destruction of the U.S. dollar.

The Fed got away with its massive money creation from 2008 to 2014.  Much of the new money went into bank reserves.  It helped keep a lid on consumer price inflation. But just because the Fed got away with it last time, we shouldn’t assume it will get away with it this time.

It is difficult to predict where prices will go in the near future.  There is obviously a lot of fear and uncertainty, which means an increased demand in dollars.  This can help to offset the major monetary inflation.

Still, you should be prepared for significant consumer price inflation.  In some ways, I am actually cheering for it because I want to see the Fed essentially forced to curtail its money creation.  I want to see Congress forced to cut spending.

I don’t want to see hyperinflation though.  That would be really bad for almost everyone.  It would likely mean a severe contraction in the division of labor.

Call me Goldilocks now.  I want enough price inflation to force the Fed’s hand, but I don’t want to see so much price inflation that food is not appearing on the shelves in grocery stores.

I don’t see any other way at this point for this madness to stop.