The Congressional Budget Office now estimates that the cost of the coronavirus lockdown will be $7.9 trillion. We’re now debating how these costs will be borne.
The economic crisis of 2020 is certainly a unique situation, and certainly deserves unique attention. We’re still guessing at what the total bill from this will end up coming in at, and the latest figures from the CBO peg this at almost $8 trillion, and the cost could end up being larger than that as we see the damage from this continue to rack up.
Governments normally intervene to combat economic downturns, in an effort to smooth out these cycles, where we spend huge sums to limit their impact and just pay it forward. In reality though, this money won’t ever be paid back and will only hasten our destruction, something hardly anyone ever talks about, especially politicians who are more concerned about the present and may not even be alive for the reckoning.
The biggest cost by far of this financial crisis will be the huge amount of money that we are adding to our national debt, and this is an issue that few people really know that much about to even care. In the face of this current crisis, where we have gone all in to the extent where economic consequences didn’t even matter, and people would even become very upset at the very idea of looking at such things, the amounts being added to our debt were certainly well beyond our focus.
The approach to the national debt among the public has been to not even care about these things, and not even see this as borrowing from the future and letting future generations worry about paying all this back, although the consequences of this are much more dire than just that. This is not just about the interest payments that need to be made blowing up, it’s about the entire economy blowing up.
There are people out there who are calling for the U.S. government to spend tens of trillions of dollars fighting this, not ten but tens, even though it’s not clear why we’d need anywhere near this much, and do so without a care in the world it seems beyond the present situation. We can thank ourselves that Congress is not quite this foolish and do take the mega spending that we’re seeing now at least a little more seriously than these people, although perhaps still not seriously enough.
We took this to a whole new level since 2007, where the debt was only 62% of GDP. At the end of 2019, this has now grown to 110%, and by the time 2020 is done, it is forecast to balloon to 136%. It’s not the 136% that should alarm us as much as the acceleration in growth that is happening, where if this trend continues, we’re going to hit the wall and go under a lot faster.
We don’t even know when doomsday will finally come, but it may happen a lot faster than the far off enough in the future not to need to care that most people believe. In theory, given an unlimited ability to keep borrowing, this could go on for a very long time. The problem is that there is a limited capacity for the government to borrow because they have to borrow from someone and this is not just a matter of typing in bigger numbers, as real money from outside the government needs to come in to keep this mega Ponzi scheme going, like all Ponzi schemes do.
The U.S. treasury borrows money from the world by selling what are called treasuries, various notes, bills, and bonds that the United States promises to make interest payments on and pay back the principal in full at the designated time on the treasury. If we keep borrowing more and more at an alarming rate, we will eventually tap out all the money that could be lent at these cheap rates, and then have to tap into other funds, competing with other investments such as stocks, where the rate offered will need to keep going up and up, costing more and more in interest payments, until this process eats up all available capital on Earth for this and we then have to look to people from other planets to buy these treasuries.
That won’t happen, so a default in treasuries isn’t a matter of if but when, and given that we just broke through $20 trillion three years ago, hit $25 trillion this year already, and will break $30 trillion in 2022, we’re approaching these limits faster and faster. When we can’t borrow anymore, this isn’t just a matter of burdening our children with this massive debt to pay back, they will pay much more dearly than that when our economy completely collapses.
It’s not even that easy to imagine what the consequences of this would be but life after bankruptcy would be grim indeed. Our economy is very fragile and this would be like a nuclear weapon to it compared to the grenades we face now. The longer we prolong caring enough about this, the faster it will come, and once treasury rates start spiking and our economic destruction becomes imminent, the countdown will be on and all we can do then is wait for the tsunami to wipe us out.
The Die Has Been Cast Already, But We Need Not Hasten our Demise Too Much
We’ve already gone well past the point of no return and there’s no way that this wave of economic destruction can be prevented, and the best we can do is be as thrifty as we can with government spending in a way that still leaves a reasonably healthy economy to at least try to stretch out the time we have left.
The spending we’ve done recently has rendered the projections that we had just last year to now be way off, and where we were expected to be in 2029 is now going to happen in 2022, and 2029 looks much uglier now. We used to have an idea of how bad things will be in 2049 but now, perhaps dragons be there like they used to put on the edge of unexplored territory on maps.
These dragons are real though, and breathe real fire as opposed to the just plain too much heat we face today. The U.S. government defaulting is far worse than just a recession or even depression, not just in terms of magnitude but especially as far as the outlook goes. Having to rebuild from scratch was something that was plausible when the country was colonized, but there are way too many people here now to become pioneers today, to find some land and feed themselves and barter with their neighbors. These days will be coming back again and there will be much loss of life, enough to make COVID-19 look like a sniffle compared to being shot in the head.
When we are looking to weigh the consequences of the much higher levels of fiscal spending that are being called for by some liberals, we need to at least account for the consequences of our actions and not think of all this as free money that we can just print. We can’t print money like this because this would destroy the U.S. dollar and have us meet our maker almost immediately, instead of having some real time, but even this time has an expiry date, and it is much closer to today than most realize.
Many of us will not live to see such a day, but governments need to ensure that given that we are on a collision course with reality, we should at least try not to have our foot on the gas so much and speed our way alarmingly fast toward our end. Congress should prefer that we not be known as the United States of Anarchy in a few decades, or at least should wish to pay more heed to forestalling this than they do.
When we calculate the cost of this shutdown, if we dare to do this yet and risk a lot of backlash from people who have chosen to completely ignore economics, we can’t just look at this $8 trillion of damage by itself, because there is a lot more at stake down the road. If we borrow the $8 trillion and hand it out, and we’ll end up doing the better part of that under the current plan, this reduces our ability to borrow in the future when we really need it by this much, for things much more basic than what is being forestalled today.
This is not to say that the government should have stood by and not increased fiscal spending to address this, but we need to do so with a sense of responsibility and proportionality. What’s done is done, but we really need to be careful not to make this all worse than it is now, and it’s plenty bad already.
All things considered, it would have been eminently preferable for the U.S. to manage the health part of the crisis as Sweden did, and this would not even be remotely a point of contention for anyone who properly understand how expensive the lockdown has become, not just now but in the future as well. The future is what is especially important to consider as this is the mountain side of it, not just the mole hill we have to deal with now with this recession.
Given the role that governments have played in this, it might only seem fair that those who have been harmed by these decisions to confine us be restored at least substantially to where they would have been otherwise, and governments do have a responsibility here, but this moral duty falls upon the states that locked things down.
They barely have the wherewithal to keep their own houses from crumbling though, and just can’t issue treasuries like the U.S. treasury can, so this responsibility falls upon Congress by default. No one wants to bear the full brunt of what would have happened if not for spending bills, so we really had no choice but to do something, although the shutting down of the economy the way we did provided benefits that were so far out of line with the ultimate costs of this that it is unspeakable.
Spending a Lot More on this Mess Needs to Be Considered Only with Great Care
The concerns being voiced in support of a lot more spending to bail us out are also disproportionate to the ultimate costs of this, although it’s easy to justify if you simply ignore the costs and keep your eyes fixed solely on its benefits. Sure, we could bail out every business that goes under and pay everyone who has been affected as much as they made before for as long as it takes, instead of just waiting for this to all blow over, as if money were no object, but it definitely is an object, and a huge one.
Our short-term injuries will heal soon enough, and our economy will be back on its feet after it heals, but the long-term costs of this cannot be righted or even addressed. This is not a matter of us buckling down and drastically cutting government spending later to make up for this, as we’re already running huge deficits that we cannot just discard without bringing on a wave of pain much bigger than the one we’re in now.
We need to do a lot more to educate the public about what is really going on with our debt problem, and if they then choose to bring the time when their descendants will be slaughtered by these actions this much closer, they are at least making an informed decision.
It is quite amusing that so many people are riled up by the threat of global warming that they will march the streets in outrage, but they don’t realize that the financial global warming that we are on a course for will be orders of magnitude worse. We don’t need to so grossly exaggerate the threat of this like we are so keen to do with climate change, but something closer to the truth than just ignoring this completely would be a big help.
Climate change concerns prove that a lot of people do care about 50 or 100 years from now, and do care about what sort of world we leave the future of humanity, so the problem here isn’t that people don’t care, they just aren’t aware enough of how big this problem is, not potentially, but actually.
We’re blackening the skies with all these extra trillions far more than Beijing on a hot day, and if we do not make serious efforts to forestall our all choking to death from all this smoke, this fire will just keep burning out of control until it finally engulfs us all. We’re not talking about losing shoreline here, we’re talking losing the country from shore to shore, and the rest of the world as well as this mega earthquake reverberates.
All we have to do in order to feel the trembling that is going on underneath the ground of the country is to imagine the extent that we’ve already tapped out the treasury market with this $25 trillion already. How much deeper in their pockets can these people dig? Twice as much, to $50 trillion, at rates low enough to not choke the treasury already? That’s not so easy to imagine.
What about four times as much, where we need to invest that much more in treasuries? Where is this money to come from? If we don’t know, that’s scary, and we really don’t know that much other than $50 trillion on the distant horizon but coming into view faster and faster, and when we get there, bigger numbers will keep coming faster and faster until a critical mass is achieved and it all explodes.
Who needs to wait though? We could just issue tens of trillions worth of treasuries now and shoot their rates way up to critical levels now, where we could be just teleported right to death’s door and revel in our insanity. There probably won’t be a market for all those extra issues at rates not considerably higher, but we’re left to guess as this is way beyond the edge of the map. This is born of pure fantasy, although this one does not come with the required wizard to conjure up all that money.
All the money in the world won’t be enough one day though, where everyone liquidates everything they have and buys treasuries, which will never happen. The ceiling for this is a lot lower than we just about everyone realizes, and we should be taking great care to eliminate any spending we can do without, including spending so much on the military that the right insists on, as well as all this free health care, education, and other massively expensive projects that the left is demanding.
We won’t have to worry about other countries blowing us up when we end up blowing ourselves up instead. We at least need to put away the extra bombs that are being talked about, as we have done more than enough harm, and especially promise not to do this ever again.