Today’s historic ouster of House Speaker Kevin McCarthy—historic because it’s the first time a Speaker was removed from leadership by members of his own party—comes as the nation faces a dire fiscal emergency that both establishment Republicans and Democrats have failed to address.
McCarthy was ousted from his position as House leader late Tuesday when a group of Republicans led by Florida Congressman Matt Gaetz joined with Democrats to vote to remove McCarthy just nine months into his tenure. Gaetz and other Republicans took aim at McCarthy after he reached a compromise with Democrats days ago to pass a compromise bill to avoid a government shutdown.
One can only understand Gaetz’s campaign to remove a member of his own party from House leadership if one understands the dire fiscal emergency Congress has created for the American taxpayer. The U.S. treasury needs $7.6 trillion to pay off bonds that will mature in the next 12 months. All of that $7.6 trillion will be replaced with higher-interest debt. With 2023 closing out at $2 trillion in deficit spending, a $2.4 trillion deficit next year seems likely. The Federal Reserve calculates there’s “only” $20.8 trillion in money circulating in the economy.
This leaves the U.S. government with only three options to convince people to lend it $10 trillion over the next 12 months—which is astoundingly equivalent to half the world’s dollars in circulation. First, the Treasury can float these bonds in the bond market. Reliable institutions and governments will buy some of these bonds. But, many investors will need higher and higher interest rates to make bond purchases attractive investments.
Second, the Treasury can turn to the Federal Reserve, which has the power to purchase bonds with created money. Call it “taxflation.” The government effectively steals some percentage of the value of Americans’ cash, paychecks, and savings by printing and circulating more and more dollars. Rich people can avoid the effects by hedging against inflation with specialty investments. The poor and middle class, however, will suffer higher prices at the grocery store. In theory, the Fed is supposed to refuse this request because it’s still fighting inflation, and to do that it needs to sell, not buy, bonds.
The third option is to let a crisis happen. When instability provokes fear, bonds should become much more attractive. So, for example, the government had no problem selling bonds during the 2008 financial crisis or the financial instability following the COVID-19 pandemic. But as things become more stable, the more attractive private sector investments become.
As the vote on McCarthy’s ouster approached, the talking heads on MSNBC, Fox News, and CNN barely understood what was going on. All three networks said the same thing: Representative Gaetz, who brought forward the motion to unseat Speaker McCarthy, was reckless and causing chaos.
It is a signal that Gaetz was doing the right thing that three news networks condemned him. Democrats joined the rebel Republicans in the first round of voting, leading to a floor debate during which both sides had 30 minutes to divide among their supporters. Gaetz argued he had extracted a promise from McCarthy to stop funding the federal government through continuing resolutions and giant omnibus bills and further argued that by bundling all these budgets together, Congress has failed to look at any of these agency budgets for most of his life. Gaetz’s opponents accused him of creating chaos and lacking respect for the institution of Congress.
“I think the fact that we have been governed in this country since the mid-1990s by continuing resolutions and omnibus is chaos,” Gaetz responded.
Gaetz’s point is that Congress has failed to use its power of the purse to curtail many government spending bills with secretive programs and escalating costs, which are bundled into omnibus spending bills. Many questions about government spending are unanswered, including how much is going toward gain-of-function and other biological research in foreign labs, such as the ones in China and Ukraine. Or, whether the Department of Justice is still using its appropriated funds to infiltrate Catholic churches and conservative organizations and to interfere in elections. Or, whether the National Institutes of Health are still using appropriated funds to tinker with viruses, allegedly to make them more contagious and deadly. How much funding is being used to fight covert wars in 134 countries? How much money is being used by the Department of Homeland Security to censor domestic political speech, rather than protecting the homeland from out-of-control immigration?
Most Americans would agree with Gaetz that these spending bills should be voted on one at a time, so that somebody looks at these abuses before sending the abusers more money. According to Rep. Andy Biggs (R-Ariz.), who also spoke for Gaetz’s motion, there have been 130 continuing resolutions since the Budget Control and Impound Law of 1974. Biggs said this act requires Congress to vote on these issues separately, yet Congress has been out of compliance with it for 25 consecutive years. “You know what that gets you?” Biggs asked in his speech, “A two trillion dollar structural deficit [per year].”
Gaetz’s rebellion seems like chaos to a political establishment that makes its decisions in secret. A few days ago, California Governor Gavin Newsom announced he would appoint a Maryland resident to represent that state in the Senate. Why would a California governor appoint somebody from Maryland to hold California’s Senate seat? The decision, like so many others in our political process, was made in secret. That’s very orderly in its way. No chaos there. But it’s a ridiculous and outlandish move that would not have been tolerated if Gavin Newsom had an opposition party in California.
If America’s situation is not already dire, it will be soon. As I wrote above, the $7.6 trillion and the new deficit must be borrowed at higher and higher interest rates. As noted by Goldman Sachs, the interest cost, just the interest, will rise to 3 percent of GDP next year. The higher the interest rate, the more the government borrows to cover these gigantic deficits. Do you see the spiral?
Congress needs to look at budgets. Under continuing resolutions, agencies get whatever they received last year plus an inflation and growth estimate. For 25 consecutive years, these budgets have grown on autopilot with little oversight from our Congress. Waiting is no longer the answer. Gaetz is right: The chaos is already here.