John Klar: Economic realities of growing debt will savage the American economy

Twenty-nine years ago, I was 29. My view of the world was dramatically different from what it is today.

In 1993, I was healthy and could bench-press 400 pounds; just a few years later I was sickened with undiagnosed Lyme disease and my health was utterly and permanently destroyed. In 1993, I was an attorney with a successful law practice — at 29, I owned the historic three-story brick building which housed my practice, as well as several other pieces of property. Now I own almost nothing and raise animals for food — no more court time for me.

John Klar

Twenty-nine years ago I was a Democrat soon to be betrayed by Bill Clinton and Barack Obama: I would have been disbarred from the practice of law for what Clinton did with Monica Lewinsky (and lied about); I trusted Barack Obama to resolve the 2007-2008 Wall Street debacle and he instead sold out to the big banks (and also to Monsanto on food labeling and farmers’ rights). I was also an agnostic with no history of faith of any kind: now I am a devout Christian.

It’s amazing how a person’s life can transform over three decades. But that rearview mirror also reflects equally dramatic change for our nation. Of course no one anticipated 29 years ago that the Democrats would launch an all-out attack on the foundational principles of America and jettison the loving truths of Martin Luther King for the hateful lies of Ibram Kendi and BLM; throw out equal protection, free speech, and due process guarantees in favor of a reckless ideological witch hunt; or abandon basic concepts of economic and monetary policy to fashion an imaginary yet impossible Utopia which would so quickly turn dystopic. All of this is most certainly not Donald Trump’s fault.

In 1993, the nation’s annual deficit under President George Bush was a mere $255 billion — considered a lot of money at the time. This year’s deficit is projected to be $1.15 trillion, but of course will be higher. The nation’s total national debt in 1993 was $4.411 trillion; it exceeded $30 trillion on Jan. 31, 2022.

Ironically, it was in 1993 that the Clinton administration enacted the Omnibus Reconciliation Act, which was supposed to cut the national deficit in half by 1997: “The act increased the top federal income tax rate from 31% to 39.6%, increased the corporate income tax rate, raised fuel taxes, and raised various other taxes.” But the debt (and reckless spending) kept climbing.

There is no disputing that both political parties have contributed to the debt build-up, but in recent years the Democrats have moved into an area unthinkable 29 years ago — “Modern Monetary Policy.” This is a shady partisan “theory” that the federal government can just print all the money it wants and there will be no adverse economic impact:

Modern Monetary Theory (MMT) is a heterodox macroeconomic framework that says monetarily sovereign countries like the U.S., U.K., Japan, and Canada, which spend, tax, and borrow in a fiat currency that they fully control, are not operationally constrained by revenues when it comes to federal government spending. … Put simply, such governments do not rely on taxes or borrowing for spending since they can print as much as they need and are the monopoly issuers of the currency. … MMT is used in policy debates to argue for such progressive legislation as universal healthcare and other public programs for which governments claim to not have enough money to fund.

This is a very different kind of debt and spending than was incurred under Donald Trump or other past presidents, and it is built on the same social justice fantasies used to upend Americans’ constitutional rights. To blame current inflation on anything other than this profligate spending under the pretense of COVID is to avoid addressing the real causes — and threats — that confront our nation and state today.

The Biden administration is experimenting economically, and the results are in: this is a horrible failure. For decades there has been consensus on the economic perils of national debt:

The World Bank found that if the debt-to-GDP ratio exceeded 77% for an extended period, it slowed economic growth. Every percentage point of debt above this level costs the country 0.017 percentage points in economic growth. … At the end of the fourth quarter in 2021, the national debt was about $29.6 trillion. Based on the fourth-quarter GDP of $23.9 trillion, the debt-to-GDP ratio was about 124%.

In contrast, the “theory” of social justice economics is that everyone in America can receive a “basic universal income” check, play XBox all day long, and the economy will just roar ahead. Like Soviet and Chinese attempts to “manage” economies in the past, this will fail abysmally — no production, no wealth. What good is $20 trillion in slavery reparations if it destroys the economy and everyone starves? No matter — “theoretical equity” is a cult that cares not for facts or reality and is already destroying everything in its nihilistic path, especially the economy.

A February 2020 article predicted accurately the economic realities the nation faces today:

For decades, a consensus of economic policy experts warned that escalating national debt brings about higher interest rates, larger government interest costs, and slower economic growth. … Indeed, a variety of spending proposals over the past several months exhibit a political momentum for increasing deficits even further. If enacted, such proposals risk a financial crisis, even if interest rates remain relatively low. … Today the economy is growing, wages are rising, and interest rates are low; Americans do not yet feel the economic effects of rising debt. They will. … Advocates of Modern Monetary Theory regard any concern about deficits and debt as unnecessary — and holding the economy back from a new era of prosperity.

Well, the jury didn’t have to be out long on this utter failure of leadership. Dismissing resultant inflation as transitory, those who have thrown Americans off this fiscal cliff bear no responsibility for its causes and thus take no action toward effective solutions. Dissembling blame-shifting onto Trump, Putin, or corporate exploitation only adds more fuel to the economic fires through unresponsive inaction.

Sadly, the economic realities of this growing debt will continue to savage the American economy. It is to be expected that the Biden administration will print yet more money as “economic relief,” in the same deluded fantasy that all humans can have all material things without work or consequence. A child understands what Janet Yellen and Joe Biden cannot fathom.

Twenty-nine years ago I met a scholar who told me “if Americans understood how little utility their possessions held, there would be utter panic.” What he was saying will soon be revealed — that fancy wall clock, ATV, or EV car, or that colorful collection of salt and pepper shakers or classic LPs, will not feed a mouse, let alone a human. The lessons of the Great Depression faded with the Greatest Generation, and must now be harshly relearned: the laws of economics bend for social theory no better than for biological laws of gender.

When the debt clock maxes out, perhaps President Biden will announce “Let them eat dollars! We can print them infinitely and guarantee a universal diet of greenbacks!” Then Americans — including the most strident of social justice warriors — will learn the hard way about economic reality and the dangers of allowing greedy miscreants to control public coffers.

Twenty-nine years ago I understood that. That fundamental rule has never changed.

John Klar is an attorney and farmer residing in Brookfield. © Copyright True North Reports 2022. All rights reserved.

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5 thoughts on “John Klar: Economic realities of growing debt will savage the American economy

  1. Jeffrey Green..
    If Vermont has a new suicide prevention hotline AND A Mental Health Crisis hotline in one front page here today, then Covid certainly didn’t save Vermont.
    It looks to me like Covid is killing Vermonters.. says these needed hotlines.

  2. And the last time the re-eval happened…..oh yea 07 and it was a RE bubble. My Tax/Acct friend tied it to act 46 (i think) the school tax …where if values rise by a certain% re-eval must be done; its the law.
    so here we are we inflated values again; we all know what happened last time …after the fall-out
    buckle up buttercup………

  3. Worry more of Vermont’s soon fiscal condition…Covid saved VT (for now). Vermont will soon enough be a “Three Alarm Financial Fire”….long before the Federal Gov’t is…..The Federal gov’t has wide latitudes to tax (VT doesn’t)…The Treasury Dept can issue bonds…..And the Federal Reserve can create money from thin air, if they want to.

    Vermont has already taxed people high enough….especially the 20% who pay 65% of all income and property taxes.

    Hey, Mr. Klar, you ought to do an article on this…Montpelier (and I bet other cities & towns) haven’t done a property re-valuation for taxes in 10-15 years.. Montpelier is doing one now. I saw some houses there selling for $600,000…but the appraised taxable value was $300,000. So when they re-adjust to current $600k values… taxes will be up “Bigly”.. BUT I bet many of these homeowners meet the income threshold to have their property taxes CAPPED & SUBSIDIZED at 2% of income. SO WHO is going to make up that large lost tax $ difference? Will the State pay? Will they force far higher taxes on the “supposed wealthy”. Close to doubling of any house value will mean ever higher taxes. But what if you are “subsidized”…Then you don’t care – because ‘Someone Else Will Pay” …that is the “Vermont Way 🙂

    • John, I think it’s 70% of the Vermont taxpayers get their property taxes subsidized. When they get re-valued after 10-15 years and valuations go up 50% to 90%…taxes WILL rise greatly – but on paper only…because 70% of VT’ers are subsidized to pay no more than 2% of income..regardless. I think I am correct that the subsidized LOSS of property taxes have to be made up from STATE funds. Which means that when anyy city & town does a tax re-valuation…increasing property values significantly……the entity that is going to get killed, financially…is the STATE itself!…because they cap 70% of Vermont residents at 2% of income. This could blow a massive hole in the State re-valuations… in the next couple years…and no one is expecting or planning for it. There is only one way out? Legislature will have to raise taxes, but only “on-the-rich”….Time to say “Buh-Bye”….:)

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