National Debt Exploding Is A Fraud Cast Upon Us All

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While we fixate on an improving GDP the national debt is not just growing but it is exploding. A marvelous take on the soaring national debt was recently presented by James Grant on The Sounding Line. It was followed by Jim Chanos speaking on fraud Chanos states, "The fraud cycle follows the financial cycle and so as you’ve noticed for the last eight or nine years… we’ve been in a pretty epic bull market." Both these speakers noted the dangers faced when central banks venture down the path of QE by greatly expanding the supply of fiat money and how the journey ultimately ends in tears.

America is not alone in spending far more than it takes in and running a deficit, however, that does not make it right or mean that it is sustainable. Much of our so-called economic growth is the result of government spending. Both Grant and Chanos claim this has created a false economic script and like a Ponzi scheme, it has a deep relationship to fraud. History confirms that during such cycles the argument flourishes that, "this time is different" but always, in the end, proves wrong.

When first unveiled in March of last year the 2018 financial year budget was projected to be $440 billion. An under-reported and unnoticed report was issued last week by the Office of Management and Budget which is required to from time to time review and update the U.S. federal budget. The report titled the “Mid-Session Review” paints a far bleaker forecast of the deficit going forward than originally predicted. The last report issued in February indicated we were looking at a deficit of $873 billion now for the fiscal year ending on September 30th they are predicting the deficit will come in at $890 billion. This means the deficit is now expected to roar in at double what they predicted in March of 2017.

To many people, such a miss would bring up the question of whether the discrepancy in the 2018 budget is an outlier or a sign of incompetence. This is especially troubling when we look forward to finding the next batch of numbers has also been ratcheted upward drastically increasing next years budget deficit as well. What was projected as a total budget deficit of $526 billion for 2019 Fiscal Year has now been revised to a staggering $1.085 trillion. These numbers, of course, are presented assuming the economy will move forward without a recession or slip into crisis. This moves them away from reality and opens the door to the likelihood if wrong the deficit will be far worse.

Debt Has Grown Faster Than Wealth Across The World

Not only should the sheer size of these numbers trouble us but we should remember that until last year some Washington optimists were forecasting that deficits would begin to decline in 2020 and that we would even have a small surplus of 16 billion in 2026. The updated revisions have washed away this glimmer of hope and replaced it with trillion dollar deficits not only next year but in the year after and even more of these going forward. Interestingly, a read of the summery that begins on page one of the Mid-Session Review comes across as a promotional piece using terms like MAGAnomicics both praising and touting the Trump administration for its vision and great work.

This is a time where it would be wise to remember numbers don't lie but the people using them do. Washington specializes in putting lipstick "On A Pig." and this report is an example of how they re-frame a colossal train wreck into something more palatable. The report even goes so far as to assure us that the deficit will fall to 1.4 percent of the GDP in 2028, currently, it stands at 4.4 percent. Those of you who have followed this blog know that I have written about the national debt on several occasions and in an article at the end of last year it was pointed out that many Americans no longer consider this an important issue. As a result of having survived with little effect what was years ago described as a financial cliff we have become emboldened and now enjoy a false sense of security. Today instead of dire warning we hear news from Washington and the media how the stock market continues to push into new territory and all is well.

Past Estimates Have Been Very Very Wrong

Those who have been through bankruptcy will tell you that running up debt is far easier than paying it off. We should also be aware that figures released by the U.S. Treasury are for public consumption rely on accounting tricks which massively understate how much debt is really being accumulated. The myth that a scenario of growth coupled with a falling deficit will allow us to outgrow many of the problems we face brings with it a false optimism and hope. It is important to remember predictions of future spending and revenue often turn out to be wrong. The chart to the right predicted that by 2019 the national debt would top 12 trillion dollars. Projections made by the government or any group predicting budgets based on events that may or may not happen at some future date are simply that, projections or predictions and not fact.

This means that such numbers most likely will prove to be totally unreliable. The ugly truth many people ignore is that starting last year entitlements became the driving force that will carry the deficit higher and higher into nosebleed territory. Even though we have seen deficits reach unprecedented levels the deficits in our future will be dramatically worse. Any claim that Washington has the budget deficit back under control is a total lie. We are currently mired in the midst of the greatest government debt bubble in the history of the world. Circling back to the talk James Grant and Jim Chanos participated in at the New York Historical Society, both men make it perfectly clear they see what is being cast upon us is a giant fraud and we should be dubious of those making promises this will end well.