This week on Facing the Future we looked at how Congress avoided a government shutdown on September 30 and whether they’ll be able to do it again before November 17 when the short-term deal they reached comes to an end. And beyond that, there is still the overriding question of when and how they will reach agreement on spending levels for full fiscal 2024 appropriation bills. In our final segment, we looked at the latest economic numbers and what they portend for the federal budget. Concord Coalition policy director Tori Gorman and chief economist Steve Robinson joined me for the conversation
It looks like a bumpy road ahead for appropriations, particularly in the wake of Kevin McCarthy’s tumultuous ouster as Speaker of the House of Representatives. Moreover, the shocking attack by Hamas on Israel has added a new demand for U.S. military aid on top of the Biden Administration’s pledge to provide more assistance to Ukraine.
So aside from avoiding a shutdown, just what was accomplished? Gorman had a good answer, “You’ve heard the phrase kicking the can down the road? Well, Congress managed to kick the can down the block. We’ve got another funding deadline staring at us on November 17th.”
She outlined four key issues for the House:
“Number one, they have to fill the Speaker position. They have a Speaker Pro Tem right now, and they’ve pretty much deduced from the way the rules are written, that this Speaker Pro Tem can’t refer legislation to committees and can’t move legislation.
“Second, funding for Ukraine and Israel. Both are top priorities right now.
“Third priority is a continuing resolution. November 17th is going to be on us quicker than you can snap your fingers so they’ve got to figure it out. I think getting a continuing resolution out of the House this time is going to be harder than it was two weeks ago.
“And then, fourth priority, they’ve got to fund the government, whether it’s in a series of smaller minibus bills, whether it’s each bill on a standalone basis, or whether it’s a Christmas tree omnibus, with 12 spending bills jammed into one big giant piece of legislation.”
Next, we turned our attention to the economy. The jobs report for September came in hot with 336,000 jobs added in the month, about twice what was expected and up from 227,000 in August. Another thing that’s getting people’s attention is rising interest rates.
For many years, The Concord Coalition has warned that there’s a vulnerability in running up as much debt as we have over the past 20 years or so. Eventually, there is a cost to servicing that debt. Up until now, that cost has been restrained because interest rates have been much lower than expected. That’s beginning to change. Rates are moving back up to the highest level in about 20 years, which has some deep repercussions for the budget.
Gorman said, “The message here is that when the Federal Reserve is artificially keeping interest rates low, the debt is not a problem. But when the Fed decides to exit, quantitative easing becomes quantitative tightening. Free money can mask a lot of problems. And we’re starting to see those problems right now.” Robinson put things in perspective by doing some math. “Contemplate this,” he said, “Thirty trillion in public debt at a 2 percent interest rate is $600 billion a year in interest cost. If interest rates go up to 5 instead of 2, that’s $1.5 trillion in annual interest cost – more than we spend on pretty much anything. I mean, we’re spending $1.2 trillion on Social Security.
“If we spend $1.5 trillion on the national debt for interest cost, you’re talking about some pain and heartburn. Eventually.Congress can’t sustain those sorts of interest rates. It would have a compound effect on the budget and just becomes prohibitive,” he said.
Gorman added, “It doesn’t stop there. You learn in economics 101, as the government borrows, borrows, borrows, it pushes up interest rates. We’re finally seeing it, but those interest rates affect the private market too. And so next thing you know, not only do we have high interest costs for government, we may actually be looking at a recession that the Federal Reserve has been trying so hard to avoid.”
Hear more on Facing the Future. I host the program each week on WKXL in Concord N.H., and it is also available via podcast. Join our guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.