By Rob Williams – Re-Blogged From Newsmax
David Stockman, the former budget director for President Ronald Reagan, said the spending plan now being hammered out in Congress will add trillions of federal debt and smother the U.S. economy.
Congress on Wednesday night released the text of the 652-page budget deal that will raise strict spending caps on domestic and military spending in this fiscal year and the next one by about $300 billion. It includes almost $90 billion in disaster relief in response to last year’s hurricanes and wildfires, and would lift the federal debt limit until March 2019, the New York Times reported.
Stockman estimated the spending plan will boost the deficit over the next 10 years to $15 trillion, pushing the federal debt to more than $35 trillion. That staggering sum would be more than a third bigger than the annual economic output of the U.S.
And that’s the optimistic scenario from the Committee for a Responsible Budget, a non-partisan public policy organization in Washington. Normal business cycles inevitably have slowdowns, Stockman said.
“It assumes that the U.S. goes 219 months (through fiscal 2027) without a recession,” Stockman wrote on his Contra Corner blog. “That’s nearly double the longest one in history during the far more propitious circumstances of the 1990s.”
The U.S. Treasury will need to raise more than $1 trillion to cover expenses for the fiscal year just as the Federal Reserve is shrinking its holdings of Treasury debt. That combination will flood the market with U.S. debt securities.
Bond investors are signaling their concerns about growing U.S. debt and inflation by selling Treasurys. As their prices fall, yields rise. The 10-year Treasury yield has increased to 2.85 percent, the highest in four years.
Stockman pointed to a lack of business spending on factories and equipment, and tepid housing construction as signs of underlying weakness in the economy. The sweeping tax reform approved by President Donald Trump, including a cut in the corporate tax rate to 21 percent from 30 percent, won’t help to stimulate investment, Stockman said.
“The only possible way to accelerate growth in a 104-month-old business cycle — where household consumers are impaled on a record $15 trillion of debt and other liabilities — is through an outbreak of capital spending,” he said. “So far, however, the corporate sector has responded to the 21 percent tax rates by announcing $86 billion of new stock buybacks and some ill-disguised PR ploys with respect to year-end ‘bonuses’ that they would have largely paid anyway.”
Stockman said the government is overspending on defense and social programs while leaving future generations of Americans with the bill.
“There is literally no way out of the fiscal trap now rapidly unfolding in Washington — short of a thundering financial collapse which blows both ends of the Acela Corridor sky high,” Stockman said, referring to the Amtrak train line between New York and Washington.
Long-term demographic shifts also will weigh on the federal budget, he said.
“When you start marching toward a $2.1 trillion deficit before even factoring in the next recession, and when you recall that today’s 60 million Social Security recipients will be 80 million by 2027 due to the massive baby boom retirement wave, you are just plain sunk fiscally,” Stockman said.