Doylestown Wealth Management - LPL

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September 2020 Budget Commentary

Source: Congressional Budget Office Monthly Budget Report

Three Trillion, and Counting

The federal government has spent $3 trillion dollars more this year than it has taken in.  The sheer size of this number should be staggering, amounting as it does to about $9000 per American.  And while this amount isn’t important for all the canards that are thrown about—“we” will bankrupt our grandchildren, the debt will “crowd out” other investment—it does prevent us from ever returning to the pre-2008 interest-rate regime of “normal” financial conditions.  We have moved from a world in which we could pretend that governments are like other borrowers (which has some advantages) to one in which Modern Monetary Theory (MMT) offers the only reasonable way of looking at Washington’s finances.  MMT says that governments borrowing in their own currencies are not constrained by the operations of debt markets, but rather can effectively simply spend money into existence without any downside other than the possibility of inflation.

The early proponents of MMT pointed to the improvements to our national infrastructure that could be made; the conventional pundits responded that it would be “too expensive.”  This commentary remembers when talk of spending a trillion dollars to modernize the electrical grid and build a new energy and transportation infrastructure to keep pace with the rest of the world was dismissed as profligate and the first step towards crippling deficits.  And yet, here we find ourselves having run a shortfall of three trillion dollars this year with absolutely nothing productive to show for it.  And while the COVID has required an emergency response, why can’t we treat our deteriorating national infrastructure as one as well?

Let’s say there was a vision for the future in America—one which involved building the most efficient energy, water, and communications infrastructure in the world.  This would mean electricity from the sun and the wind (and perhaps, as a longshot, nuclear fusion).  Significant portions of agriculture could be conducted in closed indoor environments, made possible by cheap energy and plentiful clean water.  Fast broadband would be freely available nationwide.  Roads and airports would be modernized; rail systems would provide easy access in urban movement.

The ability to create all of these things is not outside the bounds of human knowledge, nor is there a lack of materials to complete this project.  There are some scarce resources and engineering problems to be overcome to be sure, but what is really lacking is the will to begin making the future.  In the past, the issue of money was always raised when these things were being discussed—Washington couldn’t spend the money to create a better country, we were told; rapid expansion of the national debt would lead to runaway interest rates and fiscal collapse.  In direct contrast to conventional economic “wisdom”, the federal debt has increased by an average of $1 trillion annually in the last twenty years, and still interest rates are the lowest in history.  However, we have not derived much societal benefit from all that money creation—for the most part we still use the same energy sources, the same transportation infrastructure, and the same water and sewage systems (except now they are twenty years older). 

For a fraction of this year’s deficit, we could have had a new grid, railways, highways, and airports.  We could have made an enormous move in converting to cheaper, renewable energy sources.  But instead, we have none of these things, because we were told “we couldn’t afford them.”

As a society, as a country, we don’t lack money—we lack vision in the places where it matters, in our political and business leaders.  Instead of looking forward to transformed energy, transportation, and communication systems that could make the United States the envy of the world, the powers that be insist that we must remain mired in legacy systems and old ways of thinking that benefit them.  Usually the politicians at the very least pay lip service to “infrastructure” in election campaigns, but this year we merely have a clown show of distractions as we fall further and further behind the rest of the developed world. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.  All performance referenced is historical and is no guarantee of future results.  

Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Doylestown Wealth Management, Inc. are separate entities from LPL Financial.