The most dangerously foolish comment about sequestration to come from someone not named “Barack Obama” tumbled forth from New York City mayor Michael Bloomberg, as related at Observer.com:
At midnight tonight, a bevy of steep spending cuts will hit the federal government unless Congress and the White House agree to an alternative deficit-cutting proposal. Although the national media has been relentlessly focused on this deadline, Mayor Michael Bloomberg said it will only affect New York City if the so-called “sequestration” continues for a significant length of time.
“It depends on how long,” Mr. Bloomberg said on his weekly WOR radio show with John Gambling. “If it lasts a few weeks, no. If it does, yeah. We get 10 or 12 percent of our budget from the federal government, not all of that is going to be cut back, but there would be effects–not good effects. But in the context of, ‘Is anything going to change tomorrow? Are we going to run out of money tomorrow?’ I’m sure I’ll get that question at the [next] press conference. No.”
Furthermore, while saying the federal deficit does indeed need to be curtailed, Mr. Bloomberg argued the United States could owe “an infinite amount of money” and there is no specific amount that would cause the country to default.
“We are spending money we don’t have,” Mr. Bloomberg explained. “It’s not like your household. In your household, people are saying, ‘Oh, you can’t spend money you don’t have.’ That is true for your household because nobody is going to lend you an infinite amount of money. When it comes to the United States federal government, people do seem willing to lend us an infinite amount of money. … Our debt is so big and so many people own it that it’s preposterous to think that they would stop selling us more. It’s the old story: If you owe the bank $50,000, you got a problem. If you owe the bank $50 million, they got a problem. And that’s a problem for the lenders. They can’t stop lending us more money.”
(Emphasis mine.) First things first: shame on the Observer for describing sequestration as a “bevy of steep spending cuts.” They are no such thing. Spending will not be “cut” at all, never mind steeply. Sequestration is a modest reduction in the rate of spending increase; $44 billion this year out of a $3.6 trillion budget.
But on to the really treacherous idiocy! Bloomberg’s only giving the low-wattage summary of what you’d hear from a neo-Keynesian loon like Paul Krugman. It’s all just money we owe ourselves, nobody will ever hesitate to give us more, we can print tons of dollars whenever we need more, what’s the problem?
Um… Mr. Mayor? Have you ever heard of an outfit called “Standard & Poor’s?” They downgraded the credit rating of the United States precisely because they’re worried that people who think like Michael Bloomberg are running the show. Ever heard of “Moody’s” or “Fitch Ratings?” They said they would do exactly the same thing, if the U.S. government continued to behave as if could spend and borrow infinite amounts of money.
Want to know what will make every investor on the planet recoil in terror? Say something like this: “If you owe the bank $50,000, you got a problem. If you owe the bank $50 million, they got a problem. And that’s a problem for the lenders. They can’t stop lending us more money.”
Now, it’s true that what will happen, once all these credit agencies decide Mike Bloomberg’s state of mind reflects unalterable federal policy, is not the abrupt termination of all loan money to the United States. No, what will happen is that the cost of financing our staggering debt will increase dramatically. No one knows just how dramatic it will be, because government debt on the scale of Uncle Sam’s has never been downgraded before. But it will most likely consume tens of billions of dollars from the federal budget, and it might be a lot more than that. In fact, it is extremely likely that we’ll see a sum larger than the sequester disappear to pay rising budget interest costs.
Spain, Italy, and Greece all thought they could rack up infinite debt, too. They’ve all had “leaders” who repeated some version of Bloomberg’s “what are they gonna do, stop lending us money?” taunt. Italian politics were long shaped by the assumption that inexpensive loans would be available to finance government spending forever. Then, one day, that stopped being true.
Veronique de Rugy of National Review played around with some data from the Congressional Budget Office in the spring of 2011 to forecast a very realistic, far from worst-case scenario:
If interest rates were modified to reflect the average rates in the 1980s — a time in U.S. history when interest rates were driven up by inflation and economic uncertainty — in 2021 our interest payments would nearly triple from CBO’s projection of $749 billion to $2.0 trillion. Accumulated interest payments over this period would double from their current projected level of $5.7 trillion to $11.0 trillion. Needless to say, the impact of these increased interest costs on the deficit would be huge.
So the CBO already assumes, very conservatively, that we’ll be paying $749 billion per year to finance the national debt by 2012… and if we end up with the sort of interest rates we had in the very recent past, it’ll be closer to three times that much.
We’re already paying a fortune to finance the national debt, which is on track to quite literally double during the Obama years. The money we pay in debt service is known as “mandatory spending.” Perhaps Mayor Bloomberg is unfamiliar with this concept. Basically, it means that debt service must be paid, as a matter of law, in no small measure because failure to do so would panic investors and cause the already-shaky finances of the American government to collapse. Look at de Rugy’s projection of debt with higher interest rates again. She’s got debt service eating up over half of the current federal budget in 2021. That’s about the same time that all mandatory spending, including Social Security and Medicare entitlements, would devour the entire current federal budget – leaving absolutely nothing for education programs, the military, infrastructure, luxury Presidential golf vacations, federally subsidized video games, or anything else.
And even if we don’t see everyone suddenly decide to stop loaning money to the United States, it’s a problem if considerably fewer investors become willing to buy our debt. That would oblige us to ramp up the turbo speed printing presses in the Treasury basement. This nation’s debt has already been addressed through currency manipulation to a dangerous degree. Hyper-inflation is a real danger.
So no, Mayor Bloomberg, we do not have “infinite money” available to print or borrow. You may not care about 2021 or 2031, but the kids you’re condemning to live in a fiscal apocalypse certainly do. And I have to say that I question the sincerity of the liberal belief in “infinite money,” because every time a serious tax reform plan or growth-oriented tax cut is proposed, they howl about the effect it would have on the deficit. Why? If we’ve got infinite money, why not waive a bunch of taxes – corporate tax, personal income tax – and run up a little extra debt to launch the greatest economic stimulus the world has ever seen? When a serious effort to clean up America’s disastrous, embarrassing tax code is performed – the Flat Tax, let’s say, or the Fair Tax, or Herman Cain’s 999 Plan – the response is always, “no, that’s unthinkable, because it wouldn’t bring in as much revenue as the old system.” Who cares, if we’ve got infinite money and infinite debt?