Let’s Get Real About DOGE

With the New Year comes new hope and optimism. The slate’s wiped clean. A new leaf is turned over. Time to start anew.

If only it were so simple. If only, with the turn of the calendar, the mistakes from the past would magically disappear – forever. Wouldn’t it be nice?

But like unpaid bills, the mistakes remain. And they must be reckoned with.

In the sphere of money and politics, central planners in Congress, at the U.S. Treasury, and the Federal Reserve have left massive amounts of mistakes. Several generations of deficit spending and currency debasement have piled up like rotting refuse during a trash workers’ strike.

These mistakes aren’t going away.

While many Americans were fully ensconced in holiday delight, Treasury Secretary Janet Yellen penned a letter. You may have missed it. Most people did.

The December 27 letter to House Speaker Mike Johnson provided a friendly notice of the consequences of past mistakes. Namely, that the Treasury expects the statutory debt limit to be hit sometime between January 14 and January 23.

The Treasury will then resort to extraordinary measures to keep the lights on at the Capitol building and the entitlement checks flowing. These extraordinary measures are required so the U.S. government doesn’t default on its existing obligations, including Social Security and Medicare payments, military salaries, and interest on the national debt, among others.

Extraordinary measures involve diverting money from the civil-service retirement fund. When the debt ceiling is raised, the fund is then restored through the issuance of new debt. Extraordinary measures can also include furloughing federal workers.

With these extraordinary measures, the Treasury can give Congress several months to get a debt ceiling deal in place. This is all setting up to be a massive fight over how much spending needs to be cut in return for raising the debt ceiling.

Full Faith and Credit

Yellen, who will vacate her post at the Treasury on January 20 – inauguration day – closed her letter by urging “Congress to act to protect the full faith and credit of the United States.”

What Yellen means by “full faith and credit of the United States” is unclear. But we suppose she is encouraging Congress to raise the debt limit so the Treasury can continue writing IOUs that the U.S. government will never be able to pay back.

The debt limit, or debt ceiling as it’s often referred, is the maximum amount the U.S. government can borrow to pay its existing obligations. This includes Social Security, Medicare, and military salaries.

The whole charade about raising the statutory debt limit is pointless. Playing games with the civil-service retirement fund and the furloughing of federal workers may buy an extra few months before the debt ceiling is hit. But the fact is, the money’s already been spent.

Remember, the Treasury is not the one that first authorized the spending. It isn’t who failed to balance the budget. Nor did it establish the phony debt ceiling to start with. These are all works of Congress.

Yellen’s letter is too little too late. The time to control spending is before the money’s spent. Not after.

Trump, as one of his first acts as President, may be able to compel Congress to raise the debt ceiling so that the U.S. government can meet its existing obligations. But what would this really do to control spending?

Congress, over many decades, has demonstrated that it is incapable of balancing the budget.

Another approach would be to let spending push through the debt ceiling and see how people like it when their government checks start bouncing.

Time to Walk the Walk

To be clear, the debt ceiling is a statutory limit established by Congress – not the Treasury. The debt ceiling has nothing to do with the government’s budget, which is also established by Congress.

Congress, for its part, spends like there is no tomorrow. Over several generations, Congress has larded the country over with mega spending programs that the U.S. government cannot afford. Congress is also who is responsible for all the tax credit gimmicks – which reduce tax receipts – for the purpose of bending the economy to its ill-conceived ideals.

And Congress is responsible for raising the debt ceiling so the Treasury can continue to finance the spending obligations Congress already committed to. The incompetence is absurd.

The fact is the debt ceiling shouldn’t exist in the first place. Not because we believe the Treasury should be given a blank check. But, rather, because the debt ceiling, as it’s currently employed, is nothing but an artifact of Congressional failure.

If Congress didn’t shirk its responsibility, and actually passed a balanced budget, the Treasury wouldn’t be in such a pinch. Congress could then skip this whole charade and focus on more important things, like reducing the vast army of dependents that are on its dole.

The debt ceiling, as entertainment, delivers fantastic politics. That the need to raise it is coming so early in Trump’s presidency will be a major source of clarity.

Trump 2.0, with the creation of DOGE, has talked the talk about getting government spending under control. But will it walk the walk?

Will it really take an axe to government spending? Or will it continue to borrow and spend like every administration since Eisenhower.

Let’s Get Real About DOGE

The DODGE bros – Elon Musk and Vivek Ramaswamy – have talked a big game. They’ve promised to cut $2 trillion in spending.

But, in reality, all they can do is identify areas of waste where spending can be cut. They cannot make actual cuts to spending. Again, that’s up to Congress.

Come January 20, the Republicans will control the House. But it will be by a very small margin of one and three seats, depending on vacancies. Some Republicans want deep spending cuts. Other, more moderate Republicans, want to keep the spending flowing.

Any proposal from Speaker Johnson to raise the debt ceiling will have to strike a balance between cutting too much and not cutting enough. Otherwise it won’t pass.

This is why DOGE will be unable to achieve its objective of $2 trillion in spending cuts.

The standard operating procedure in Washington is debt, deficits on top of deficits, debt ceiling hikes, again and again. These repeated failures have been going on for decades. And they’ve created a nation of dependents.

Over the last 90 years, for example, massive segments of the population have become dependent on government spending programs for their daily bread. Social Security and Medicare recipients. Defense sector contractors. Welfare dependents. Social services. Public works. Washington lobbyists. And many more.

If Trump, Musk, and Ramaswamy, can compel Congress to balance the budget they’ll have achieved something that is politically impossible. The odds they face are slim to none.

More than likely, after much histrionics, the debt ceiling will be lifted once again. Some spending cuts will be made around the edges. Congress will give itself a great big pat on the back.

But nothing of significance. Certainly nothing that will balance the budget or put Washington on a path to paying down the debt.

As a result, when Trump’s term is over the national debt will be over $50 trillion.

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Sincerely,

MN Gordon
for Economic Prism

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