Tag: debt

The Debt And Deficit Problem Isn’t What You Think

In recent months, much debate has been about rising debt and increasing deficit levels in the U.S. For example, here is a recent headline from CNBC…

The article’s author suggests that U.S. federal deficits are ballooning, with spending surging due to the combined impact of tax cuts, expansive stimulus, and entitlement expenditures. Of course, with institutions like Yale, Wharton, and the CBO warning that this trend has pushed interest costs to new heights, now exceeding defense outlays, concerns about domestic solvency are rising. Even prominent figures in the media, from Larry Summers to Ray Dalio, argue that drastic action is urgently needed, otherwise another “financial crisis” is imminent.

The problem with Larry Summers’, Ray Dalio’s, and many others’ warnings of impending financial doom is that they have been warning of that very problem for decades. Such was the point of our previous discussion:

“It doesn’t take much to understand that Ray Dalio, a hedge fund titan, is like every other human being and is prone to error. I will not dismiss Dalio entirely, as his track record of managing money at Bridgewater is nothing to be scoffed at. However, his track record is far less enviable regarding debt crisis predictions. Here is a brief timeline.”

  • March 2015 – Hedge Funder Dalio Thinks the Fed Can Repeat 1937 All Over Again
  • January 2016 – The 75-Year Debt Supercycle Is Coming To An End
  • September 2018 – Ray Dalio Says The Economy Looks Like 1937 And A Downturn Is Coming In About Two Years
  • January 2019 – Ray Dalio Sees Significant Risk Of A US Recession
  • October 2022 – Dalio Warns Of Perfect Storm For The Economy (That was also the stock market low.)
  • September 2023 – Dalio Says The US Is Going To Have A Debt Crisis

But you can even go further back than these when he wrote about some of his biggest mistakes about a decade ago:

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Wind & Solar Energy Bankrupting Sunshine State

The State of Florida, long a model of economic growth and conservative fiscal policy, now faces a paradox: while bathed in sunshine and surrounded by natural beauty, it is flirting with energy insolvency. Despite its bounty of natural gas and a history of reliable and affordable electric power, the Sunshine State is increasingly embracing wind and solar energy—two intermittent sources heavily reliant on subsidies, regulatory distortion and taxpayer support.

According to energy analyst Dave Walsh, a speaker at last weekend’s Reclaim Campaign event in Venice, Florida, this green energy shift is not only misguided—it is a direct threat to Florida’s economic sustainability.

Dave Walsh, former president of Mitsubishi-Hitachi Power Americas and a frequent commentator on energy policy, has issued repeated warnings about the consequences of an overreliance on renewable energy. His central thesis is simple: wind and solar power are not financially or technically viable replacements for baseload energy.

Unlike clean coal, natural gas or nuclear—which produce consistent power regardless of time or weather—wind and solar depend on conditions beyond human control. In Florida, that volatility translates into higher costs, increasing grid instability, and growing dependence on backup generation that negates many of the claimed environmental benefits.

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Think Uncle Sam Owes $37 Trillion? It’s Far Worse Than That

When asked how far the US government has plunged into the red, many fiscally-conscious Americans will tell you the national debt has reached $37 trillion. As distressing as that official number is, America’s true fiscal situation is even worse — far worse. According to a barely-publicized Treasury report, the actual grand total of Uncle Sam’s obligations is more than $151 trillion.

That huge discrepancy springs from the fact that the federal government doesn’t hold itself to the same accounting standards it imposes on businesses. Rather than using accrual accounting — which recognizes expenses when they’re incurred — our Washington overlords self-servingly use simple cash accounting, only recognizing expenses when they’re paid. As a result, discourse on federal obligations solely focuses on the national debt, comprising Treasury bills, notes and bonds.

Once a year, however, an obscure report delivers a more accurate version of Uncle Sam’s balance sheet. While it receives almost no attention from journalists or public officials, the Treasury Department is required to submit an annual report to Congress detailing the government’s financial condition. Critically, the 1994 law compelling this report mandates that it reflect “unfunded liabilities” — that is, commitments made without any dedicated assets or income streams to ensure they’ll be kept.

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Waste Of The Day: Puerto Rico, Guam, Others In Debt

Topline: The five inhabited U.S. territories are collectively $57.8 billion in debt and have issues with their financial statements that “can lead to poor financial decisions and lost access to capital markets,” according to a new report from the Government Accountability Office.

Key facts: The GAO suggested that the territories may struggle to repay their debt even more than the 50 U.S. states. The territories have high energy and import costs, extreme weather, economies that rely on just a few industries, and had a population decrease from 2010 to 2020.

Puerto Rico holds the most debt by far with $52.8 billion as of 2022, which is 47% of its gross domestic product. Guam ($2.5 billion of debt as of 2023), the Virgin Islands ($2.2 billion as of 2021), the Northern Mariana Islands ($121 million as of 2021) and American Samoa ($145 million as of 2023) are also struggling to balance their budgets.

If some of those statistics seem outdated, it’s because they are. The territories are supposed to release financial statements nine months after each fiscal year ends, but American Samoa is the only one meeting that deadline.

While Guam includes 2023 figures, it issued them seven months late.

The delays could hurt the territories’ credit rating, making future borrowing more expensive, according to the GAO. The territories also can’t be audited if they don’t have financial statements, which the GAO says will make it more difficult to identify potential fraud.

American Samoa is also the only territory properly managing its federal funds. The other four territories all had “questioned costs” in the most recent audits of their financial statements, which could mean “there was a violation or possible violation of a statute, regulation, or the terms and conditions of a federal award.” 

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France’s Fiscal Reckoning: Is The Eurozone’s Second Giant Next In Line?

France is caught in a debt spiral. Now the president of the French Court of Auditors is warning of the consequences of political inaction.

Pierre Moscovici has served as president of the French Court of Auditors for five years, overseeing regular audits of the nation’s public finances. From 2012 to 2014, he was France’s finance minister and then spent five years as EU Commissioner for Economic and Financial Affairs, Taxation and Customs. The man knows his way around empty coffers.

On Wednesday, Moscovici called on Prime Minister François Bayrou to take urgent steps to consolidate public finances. France’s budgetary situation, he said, has spun out of control, especially in 2023 and 2024. If a turnaround is not achieved soon, the capital markets will force one. “We can still act voluntarily,” he warned the government, “but tomorrow, the markets may impose austerity.”

For Now, Calm in the Bond Markets

Once the dominoes start falling, it goes fast. Investors dump French government bonds en masse. Yields spike, prices plummet, and refinancing the country’s massive debt becomes even more costly. Already, interest payments consume 10.6% of France’s state budget—roughly the same as education spending. As debt levels rise, fiscal maneuvering space shrinks.

With sovereign debt at 114% of GDP, the trap could snap shut unexpectedly. For now, European officials still point fingers at the U.S., whose debt ratios are similar. But no one can say how long that deflection tactic will work. Credit risk materializes suddenly—usually without warning.

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Americans Carry Median Non-Mortgage Debt of Nearly $19,000: Report

Americans in 100 of the largest metropolitan areas now have a median non-mortgage debt of $18,762 across four generations—baby boomers, Gen X, millennials, and Gen Z—which is down by 23.9 percent compared with $24,668 in 2024, financial services company LendingTree said in a June 24 report.

Non-mortgage debt includes personal loans, auto loans, credit card debt, student loans, and other debt.

Gen Xers, aged 45 to 60 years, have the highest median debt, at $26,207.

This was followed by millennials (aged 29 to 44 years), with a debt of $24,810; Gen Zers (aged 18 to 28), with $12,715; and finally baby boomers (aged 61 to 79), with $10,272.

The median debt fell in all four generations, with baby boomers seeing the largest decline at 45.3 percent. For the remaining three generations, debt fell by about 18 percent to 23 percent.

Matt Schulz, chief consumer finance analyst at LendingTree, called the decline in debt across generations a significant decrease.

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Belated Republican Objections to the One Big Beautiful Bill Glide Over Its Blatant Fiscal Irresponsibility

The One Big Beautiful Bill Act, which the House of Representatives narrowly approved early in the morning on Thursday, May 22, lives up to its name in at least one respect: It is big, weighing in at 1,037 pages and nearly 200,000 words. Since the bill’s final text was not available until 10:40 p.m. on Wednesday, about eight hours before it passed by a single-vote margin shortly before 7 a.m. the next day, it would not be surprising if bleary-eyed legislators overlooked some of its nuances in their hurry to deliver the package that President Donald Trump demanded. As Reason‘s Liz Wolfe notes, at least two Republicans—Reps. Mike Flood (R–Neb.) and Marjorie Taylor Greene (R–Ga.)—have publicly admitted as much, saying they missed objectionable parts of the bill when they voted for it.

If Flood and Greene had voted no, it would have been enough to change the outcome. Furthermore, it seems safe to assume that at least some of their colleagues had similar regrets but are too embarrassed to admit that they failed to exercise the minimum diligence that should be expected from members of Congress. But the complaints from Flood and Greene are notable for another reason: They have nothing to do with the bill’s blatant fiscal irresponsibility, the main flaw highlighted by critics such as Rep. Thomas Massie (R–Ky.), Sen. Rand Paul (R–Ky.), and Elon Musk, who on Tuesday condemned “this massive, outrageous, pork-filled Congressional spending bill” as “a disgusting abomination.”

That much was clear prior to the House vote. As Reason‘s Eric Boehm noted the day before Flood and Greene gave their crucial assent to the bill, the Congressional Budget Office (CBO) projected that it would add $2.3 trillion to the national debt over 10 years—an estimate that the CBO upped to $2.4 trillion this week. Boehm added that “other assessments of the bill” by the Yale Budget Lab (originally published on May 16) and the Penn Wharton Budget Project (published three days later) estimated that it would add “more than $3 trillion” to the debt.

Those are low-ball estimates, based on the unrealistic assumption that Congress will allow Trump-favored tax cuts to lapse toward the end of that period. If “temporary provisions in the bill are made permanent,” Boehm reported, the Yale Budget Lab estimated that it would trigger $5 trillion in new borrowing.

The national debt currently exceeds $35 trillion, including about $29 trillion in debt held by the public, which is about the size of the entire U.S. economy. In January, the CBO projected that publicly held debt would hit 119 percent of GDP by 2035. Two months later, Trump promised to do something about that. “In the near future,” he told Congress, “I want to do what has not been done in 24 years—balance the federal budget. We’re gonna balance it.” But the glaring gap between that promise and the One Big Beautiful Bill Act did not faze Flood or Greene, whose concerns are much narrower.

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After Backlash, White House Prepares Rescissions Bill To Codify Some DOGE Cuts

The big question in recent weeks: Why are House Republicans hesitating to codify the waste and fraud identified by Elon Musk’s Department of Government Efficiency (DOGE) into law?

Musk’s CBS News interview on Tuesday, where he called the “Big, Beautiful Bill” (BBB) a “disappointment,” appears to have kicked off a broader information campaign aimed at pressuring the White House to push House Republicans toward formally codifying some DOGE-related spending cuts.

By Wednesday afternoon, Politico reported, citing two anonymous Republican sources, that the White House plans to send a rescissions bill (appropriations bill) to Congress next week to formally propose the spending cuts.

The package is expected to target funding for NPR, PBS, and certain foreign aid agencies previously reduced under President Trump.

Here’s more from the report: 

The package set to land on Capitol Hill is expected to reflect only a fraction of the DOGE cuts, which have already fallen far short of Musk’s multi-trillion-dollar aspirations. The two Republicans said it will target NPR and PBS, as well as foreign aid agencies that have already been gutted by President Donald Trump’s administration.

House Speaker Mike Johnson stated that the House is “eager and ready” to act on the DOGE findings, while Senate Majority Leader John Thune and others voiced frustration over the delay.

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The CFPB wanted medical debt to be left off credit reports. That’s changed under Trump

David Deeds is in financial trouble, and he’s hoping a federal court in Texas can help get him out of it.

Deeds, who is 62 and owes tens of thousands of dollars in medical debt from cancer treatment, is involved in a complicated lawsuit filed by credit industry groups over the Consumer Financial Protection Bureau’s medical debt rule.

The rule, finalized in January just weeks before the end of the Biden administration, would have banned the reporting of medical debt from credit reports. At the time, the agency reported 15 million Americans would benefit from the change, removing $49 billion in medical debt from records. It was set to go into effect in March.

But new leadership appointed by President Trump now runs the CFPB. And the agency hasn’t just reversed its position on the consumer protection rule — last month, it joined forces with the plaintiffs who filed the suit trying to block it. The agency has not returned a request for comment from NPR.

Over the last few months, Judge Sean Jordan from Texas’ Eastern District has twice ordered a stay, delaying the rule’s start date to July 28. He is likely to make a ruling on whether or not to vacate it by mid-June.

The outcome of the suit, filed on the same day the rule was issued, has important financial implications for Deeds, as well as the millions more whose medical debt has negatively impacted their credit scores.

“My credit was and is very important to me, because it is necessary to secure housing, transportation, and employment, and make sure that I’m never homeless again,” Deeds said in an affidavit filed on Feb. 24, by a consumer advocacy group intervening in the lawsuit.

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Decade after Tea Party movement, conservatives still unable to meaningfully cut debt

As President Donald Trump’s “big, beautiful bill” moves toward a final vote in the House, conservative budget hawks are livid that it largely fails to offer spending cuts to their satisfaction, marking the latest in a long line of punts for the House GOP that has repeatedly vowed to address the national debt.

Republicans have long campaigned on addressing the debt, with the Tea Party movement notching historic election wins under President Barack Obama. In 2010, Republicans won control of the House and reduced the Democratic majority in the Senate. Yet, even when Trump first took office, Congress did not pass a balanced budget. 

Under President Joe Biden, House conservatives aggressively pushed then-Speaker Kevin McCarthy to agree to budget concessions when challenging his leadership. His attempts failed to satisfy debt hawks and McCarthy lost his post in October 2023. His replacement, Speaker Mike Johnson, R-La., reportedly frustrated fiscal conservatives, perhaps even more so than his predecessor.

The mega-bill

Johnson repeatedly passed continuing resolutions to maintain spending at Biden-era levels, despite promising to separately pass all 12 appropriations bills to fund the government through the traditional process. His tenure has seen firebrands, such as Reps. Marjorie Taylor Greene, R-Ga.; Thomas Massie, R-Ky.; and Chip Roy, R-Texas, all publicly lament the unwillingness of Congress to address spending and other campaign promises. The three voted “present” in a late Sunday night session, allowing the bill to go forward, with Roy revealing there was progress on moving up the start date for new Medicaid work requirements and speeding up the phaseout of green energy incentives.

The current House plan of passing a mega-bill to address all of Trump’s key priorities is still drawing fire from the same livid budget hawks. Several of them delayed the bill’s advancement through key committees, although a floor vote is now in the offing. “The US credit rating being downgraded is evidence of how our fiscal house is out of order,” Rep. Ralph Norman, R-S.C., said Monday.

The Trump administration has pinned most of its legislative hopes on passing a single piece of legislation through the House and Senate and using the budget reconciliation process to include many of his tax and border security promises. Trump has repeatedly hinted at passing a balanced budget during his second term, though the mega-bill appears nowhere close to accomplishing that goal.

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