*OPINION: The opinions, views, and snarky commentary expressed in this article are solely those of the author, Brian Baker, and not those of Rob Kendall, WIBC, Emmis, or the Dalai Lama.
Four U.S. House Republicans from Indiana voted in favor of sending $2,000 stimulus checks to Americans Monday evening. Indiana Rep. Jim Banks was not one of them.
The Republican congressman from Indiana’s 3rd District joined WIBC’s Rob Kendall Wednesday morning to explain his decision to vote “no” on a bill that would have provided many Hoosier families with desperately-needed financial relief.
“Where we’re tangled up in Washington is that this [bill] is not about helping people who have been affected by COVID; this is becoming about which party can be on the side of giving the most stimulus checks to people who in many cases don’t need it,” said the Congressman.
Rep. Banks did not reveal when he first discovered his gift for clairvoyance, which apparently gives him the magical ability to accurately ascertain the specific individual financial needs of more than 300 million Americans.
“We started the year out, Rob, with a $22 trillion national debt. We’re going to end it at $30 trillion dollars if these politicians get their way and we hand out these additional $2,000 checks,” said Banks, ignoring the importance of consumer spending to the American economy and the massive inflation that will inevitably result from the policies of the Federal Reserve once we emerge from the pandemic. Those fiscal policies will lessen the drag of our national debt on economic growth in the long-term.
Is The National Debt a Problem? The answer is complicated.
The United States national debt hit a new high of $27 trillion in October of 2020. That’s a lot of money; however, it’s important to view a country’s national debt in context.
During a recession, expansionary fiscal policy, such as spending and tax cuts, is often used to spur the economy back to health. If it boosts growth enough, it can reduce the debt. In other words, a growing economy produces more tax revenues to pay back the debt.
When an economy is expanding, however, tax hikes accompanied by spending cuts are necessary to pay for the earlier cuts and increased spending implemented during the recession.
More on that in a moment…
The National Debt Versus The Debt-to-GDP Ratio
A far better means of ascertaining the impact of the national debt on our economy in the long-term is the debt-to-GDP ratio. A growing economy generates inflation, and with interest rates near 0%, real-world borrowing costs on long-term debt would be less than the rate of inflation in a healthy economy.
That’s why lenders are hiking fees in 2021 on certain types of borrowing vehicles like a mortgage refinance loan. If you refinance a 30-year mortgage at less than 3%, the lender will be lucky to break even on that loan. Hence why we are now seeing the implementation of “adverse market fees” and other hidden costs that artificially raise the cost of your loan.
Why do borrowing costs matter? Because the United States finances its debt by selling Treasury Bonds, and the Federal Reserve is once again buying those bonds via Quantitative Easing to artificially reduce interest rates and pump money into the economy.
In effect, the Federal Reserve is creating money out of thin air. More money chasing the same amount of goods and services means inflation – a hidden tax on the American peoples’ savings. It also means that the $27 trillion debt becomes less expensive because it’s being paid back with cheaper dollars.
The U.S. Treasury has currently shelved plans for a 50-year bond note, but it will issue them eventually. When that happens, the national debt becomes even less of a problem because when that 50-year note fully matures, the money used to pay it will be worth a fraction of what those dollars are worth in 2020.
Debt-to-GDP in the United States as a Measure of Economic Growth
The World Bank found that if the debt-to-GDP ratio exceeds 77% for an extended period of time, it slows economic growth. Every percentage point of debt above this level costs the country 0.017 percentage points in economic growth per year.
The United States debt-to-GDP ratio rose to a record of 136% at the end of the second quarter of 2020. Is it time to panic? Actually, no.
The United States debt-to-GDP ratio fluctuates wildly depending upon the health of the U.S. economy, and it climbs above 77% fairly regularly.
Significant Debt-to-GDP Ratio Benchmarks:
- 1944: 90%
- 1945: 114%
- 1946: 118%
- 1947: 103%
- 1948: 92%
- 1949: 93%
- 1950: 86%
Keep in mind, those percentages were at a time in history when the United States was still on a gold standard and limited in the amount of currency it could produce. We haven’t been on a gold standard since the late 1970s.
Post Gold Standard Debt-to-GDP Ratio Benchmarks:
- 2009: 82%
- 2010: 91%
- 2011: 95%
- 2012: 99%
- 2013: 100%
- 2014: 102%
- 2015: 100%
- 2016: 104%
- 2017: 104%
- 2018: 104%
- 2019: 106%
- 2020: 136%
Yes, 2020 represents a significant jump in government borrowing and spending, but keep in mind that economic output is disastrously low due to the pandemic and government shutdown. Once we are back to full economic output, the debt-to-GDP ratio as a percentage will decline dramatically.
Again, a recession requires government spending and tax cuts to counter the economic contraction. When the economy is back on its feet, higher taxes and reduced government spending can be implemented, allowing us to chip away at the national debt.
The point: Congressman Jim Banks and other high salary Republicans in Washington are arguing about the cost of next month’s water bill while our house is burning to the ground.
The U.S. National Debt is nearly $27.6 trillion dollars. Telling Hoosier families that their government can’t afford to send them an extra $2,800 dollars because it’s not responsible and burdens our children is simply asinine.
Further, Rep. Banks is several trillion too late to start voicing concerns about debt.
Where was Congressman Jim Banks’ testicular fortitude when the Trump tax cuts were rammed through at a time when the economy was already expanding? Those tax cuts were not accompanied by a reduction in spending, and it caught up with us when the inevitable recession finally hit.
“Mr. Trump’s tax cuts and sweeping deregulation—especially regarding energy—fundamentally changed course from Mr. Obama. These policies have driven today’s boom, increasing annual growth to more than 3% within six months and now to over 4%.” https://t.co/cowdeKqoSC
— Jim Banks (@RepJimBanks) September 12, 2018
The economy was already on an upward trajectory when those tax cuts were implemented. The Fed’s inflation target is only 2%. 3% to 4% in annual growth is a signal for the Fed to slowly hike interest rates and cool the economy down, but that didn’t happen. Stocks weren’t hitting those record highs on fundamentals, Rep. Banks.
Those short-term gains ushered in by the Trump tax cuts robbed the government of the tools it would traditionally utilize to spur economic growth in a recession. Thus, the need arose for more Quantitative Easing and “helicopter money” when the pandemic hit.
Americans Don’t Need $2,000 Checks
For Congressman Jim Banks to presume that a $2,000 check is money that many Americans “don’t need” demonstrates his complete and total arrogance as a Washington lawmaker.
Who are you, Rep. Banks, to tell my family what we need? Perhaps you’d care to sit down and show me YOUR family’s budget. I’ll bet I could find some areas where you could cut back and live a more modest lifestyle. Let’s get together! Any savings I find can be donated to your favorite charities!
Rep. Banks isn’t missing any paychecks, but many American workers are suffering under the financial strain of partial furloughs. A 20% pay cut might not bring financial devastation to six-figure bigshots like Congressman Banks, but for workers with children who are earning less than $50K per year, taking home only 80% of your regular salary is a major burden – especially when your government refuses to let you return to work.
That’s just my opinion, however. WIBC’s Rob Kendall has a completely different take on Banks’ fiscal concerns. And as I always say, Rob’s entitled to his opinion – even when he’s completely wrong.
Click below to hear Rob’s full interview with Rep. Jim Banks.