Fiscal Incontinence, Political Paralysis, Sticky Inflation, Biden At His Best, Trump At His Worst As Israel Fights For Survival

Israel was militarily unprepared for the terrorist attack by Hamas, for reasons as yet unknown. America was fiscally and geopolitically unprepared for reasons well known. On the fiscal front, the President is unwilling to end the tsunami of spending masquerading as the Inflation Reduction Act and Bidenomics, and Republicans are united only in their unwillingness to raise taxes.

Let The Red Ink Flow

The red ink continues to spill: the deficit for the 2023 fiscal year ending September 30 was $1.7 trillion, up $300 billion on 2022. The $33 trillion-and-rising national debt, which is the accumulation of past deficits, is so large that many analysts believe interest payments will ere long exceed our military budget. Some $860 billion of that debt is held by China, an adversary searching for ways to do us harm.

Shortly after the 2024 elections, congress and the new, well, old President will have to decide whether to extend the Trump tax cuts set to expire after 2025. Biden has already proposed extending about two-thirds of those  tax cuts, benefitting all except the top 2 per cent of earners. Democrats’ efforts to hit those top earners have failed in the past, and are not likely to succeed in the future. Meanwhile, both parties have announced that they will not cut entitlement spending – social security and Medicare.

No tax increases, spending rising, more deficits raising the national debt, its carrying cost also rising as we move from a decade of zero interest rates to one in which 5 per cent is closer to the long-run norm.

Who’s Afraid Of Rating Agencies  

No problem. Work the printing presses overtime, print more dollars, and if Moody’s joins its fellow ratings agencies, Fitch Ratings Service and Standard & Poor’s, in downgrading U.S. debt, fret not. The earlier downgrades passed without noticeable effect. Rumors that large baskets suitable for carrying dollars to the grocer are being made have not been verified, although the bright sales prospects for these dollar totes was mentioned to me by a shrewd observer at breakfast the other day, tongue firmly planted in cheek I trust.

The Spectator’s Sam Leith once described “a point at which the magic money tree is at last leafless and looking stark against the winter sky.” That might prove to be the fiscal condition in which America finds itself as its adversaries construct their New World Order and attempt to accelerate the decline in the dollar as a reserve currency. No surprise if our allies wonder just how America will pay for the hard power needed to help them stave off simultaneous threats from Putin in Europe, Xi in Asia, and whatever terror groups Iran chooses to fund so it can kill Jews. As Reuel Gerecht, once a CIA man on Iran, says of the terrorists, “Killing Jews makes them happy. It gives them a frisson.”

Biden Rises To The Occasion

On the political front, the President delivered what, warts and all, is the finest speech in his long career. He replaced customary calls for restraint by both the terrorists and Israel with a promise of “all appropriate” support for Israel’s plan to obliterate Hamas, which plan should include somehow minimizing civilian causalities in Gaza, a densely populated area in which terrorists shield behind civilians. Quite sensibly, Israelis chose to ignore, at least publicly, the “all appropriate” Biden escape hatch, one he used when deciding that all “appropriate” aid to Ukraine did not include planes or tanks or weapons capable of reaching Russian territory. Israel’s more important problem is to cope with the predictable shift of public opinion that occurs when sympathy for Israel-the-victim shifts to antipathy for Israel-the-victor, or in this case a possible victor if it can destroy Hamas while living within the restrictions imposed on its military by Biden.

Republicans Prove They Cannot Govern Themselves, Much Less The Nation

An increasing number of Republicans in the House, the body in which spending bills must originate, refuse to make an honest man of the President by matching his words with hard cash for Ukraine. Or to select a Speaker so that the House can convene and vote funds to restock Israel’s inventory of military equipment. The President, who will send a supplemental spending request to Congress this week will attempt to solve that problem by mashing aid to Ukraine, Taiwan and funds for border security into the Israel aid bill. Support for Israel, reckons the Biden team, will drag the other items across the congressional finish line and onto his desk for a public signing ceremony.

Trump Gives New Meaning To Self-Regard

As usual Trump will be urging Republicans to take positions that satisfy his own need for attention and revenge than the interests of any party to these horrible wars. Rather than support Ukraine he says, allow him to meet with Putin and the war would be over in 24 hours, presumably because Putin would trade peace for a piece of Ukraine. As for Israel’s struggle, he concentrated his fire on Netanyahu, who had the temerity to congratulate Biden for his election victory in 2020. And, because Netanyahu, preferring calm in the dangerous neighborhood in which his country lives, did not go along with America’s plan to assassinate an Iranian terrorist, “I’ll never forget that Netanyahu let us down. That was a terrible thing. … If the election wasn’t rigged, there would be nobody even thinking about going into Israel.”

Inflation Proves Sticky

While the war dominated the news for most people, investors focused on the surprisingly hot producer price data, the hot consumer price data that added to the feeling that “stickier” inflation is here to stay, and on the outpouring of new IOUs – about 25 per cent more than last year at this time —  that the Treasury was finding it difficult to auction off. Add continued belief that the still-strong labor market adds to the need for higher interest rates to cool the economy and pressure on bond prices increased.

My guess is that renewed aggressive actions by trade unions – demands for 40 per cent wage increases in autos after similar raises for pilots and package delivery drivers, big increases for nurses – along with consumers’ continued spending from a savings hoard greater than was originally reported were also factors. The result is an economy in which bond vigilantes have displaced the Fed in the front line of the inflation fight, investors are beyond skittish, but a low-unemployment soft landing remains a possibility as earnings season seems off to a good start.

Unless it doesn’t. After all, there is no end in sight for skint America’s political dysfunction and fiscal incontinence. The coming election will produce an ageing President devoted to greening America at any cost, backed by an incompetent vice president, or one with less interest in righting the nation’s economy and coming to the aid of America and its allies than in avenging real and imagined slights.

Perhaps something will turn up. It always has for America.