Whatever worries you about what’s going on in the world, stop. The advice is wise not because your fears aren’t potentially valid, but precisely because they’re potentially valid. If they are, rest easy that what keeps you up at night has already been priced.
Take the present budget debate between the left and right. About the debate, it should be said ahead of time that government spending is the cruelest tax of all. When governments spend, they’re substituting knowledge-deficient politicians for the marketplace in the allocation of trillions worth of privately produced resources. The negative impact on the economy is staggering, but largely unseen.
The above is written as a way of clearing up any misunderstanding about the good or bad of government waste. It’s once again a cruel tax.
At the same time, the budget debate is a cruel assault on reason. On the right, Foundation for Economic Education economist Peter Jacobsen is joined by a myriad of other right-of-center types in asserting that spending cuts instigated by the Department of Government Efficiency (DOGE) are a necessary beginning to stave off a crisis related to the federal debt. They miss the point.
Plainly missed by Jacobsen and friends is that the surest sign a “crisis” related to the national debt ($36 trillion and counting) isn’t in the offing is all the debt. Get it? Treasuries are the most owned and analyzed assets in the world. Unless Jacobsen et al think markets rather stupid, and that the world is eagerly purchasing Treasuries to lose money, they should tone down the crisis commentary and focus on the real problem. More on that in a bit.
Pivoting to a left wing that is disdainful of DOGE and its actions, they claim the crisis isn’t the debt (true, but they don’t know why), rather the “true risk is our political leaders doing something wildly irresponsible that unnerves financial markets.” A payment hiccup, default, or both. That’s what Brookings scholars Wendy Edelberg and Ben Harris wrote in the New York Times. Of course, the same $36 trillion worth of debt that discredits what gives the right vapors is what discredits the left’s panting.
The possibility of a cessation of debt payments is already priced. To believe otherwise, is to once again believe markets are incredibly stupid, that the deepest market in the world doesn’t factor in the possibility that Treasury might stop its debt payments for a little or perhaps a long time. Furthermore, such a view ignores that no one borrows or lends with “money” in the first place.
Getting more specific, when we lend money we’re exchanging near-term access to resources for longer-term access. The money paid to the lender, plus interest, rewards the lender with greater access to resources down the line in return for foregoing it today.
Applied to Treasuries, never forget that they pay out dollars. And the dollar has been in decline at various times as a reflection of it no longer having a fixed definition. In other words, inflation (meaning dollar devaluation) has long existed as evidence of persistent default by the U.S. Treasury. Despite this, there’s no global market tumult of the “crisis” kind reflecting the views of a left wing that views most any kind of payment reduction or cessation as a prelude to something worse.
Why isn’t there a crisis? Because markets are relentlessly pricing in everything, including alarmist ravings from a left and right that see crisis everywhere while imagining that others don’t.
