Interest charges are crippling households

And transferring more wealth to the wealthy

American households are spending approximately $573.4 billion on non-mortgage debt annually, and another $578.3 billion on mortgage debt, according to Bloomberg. Those charges amount to $8,588 per household. In parallel, the federal government under Biden has so much debt that its annual interest payments now amount to $892 billion but expected to grow to $1.7 trillion within a few years.

If debt and bond holdings were equally distributed, households would receive about as much interest as they paid and the economy would be largely unaffected. But, of course, that equal distribution exists nowhere in America and for that matter nowhere on Earth.

Something like 30% of U.S. federal debt is held abroad and interest on that debt leaves the country. The other 70% goes to Americans but most to Americans so well off they don’t pay interest or to their banks and pension funds. In the result, net interest on debt in America flows from the poor to the rich. No one surprised? No one should be. That is how the American system works.

Democrats don’t mind running up debt since it suits their billionaire donors. Republicans don’t mind running up debt since it fuels economic growth suiting their corporate donor class. The difference is subtle. When Republicans like Trump ran up massive debt it was though tax cuts and pretty well everyone had more money in hand to reduce their own debt and pay less interest. When Biden ran up massive debt, it was to fund progressive projects like the so-called “Inflation Reduction Act” which squanders billions on the pretense that CO2 causes climate change and is accompanied by proposals to increases taxes, forcing those already in debt to either borrow more or live a less expensive life. For those living hand to mouth, a less expensive life is a pipe dream.

The collision of ideologies could not be more stark. Progressives like Kamala Harris want centralized control of the economy, high taxes and a population dependent on government. Conservatives like Donald Trump want a free market economy with additional revenues from economic growth offsetting lower taxes. Only one of these two choices will “make America great again” and it is not Harris.

It is not just higher debt that benefits the rich. Higher corporate taxes do as well, since corporations pass on the cost of the higher taxes in price and the effect is that consumers pay the higher corporate taxes, again transferring wealth from those less able to pay to those already basking in sunshine. This system did not occur over night like mushrooms after a rain - it has taken generations for Democrats to learn that they can pretend to help the poor while helping themselves and in the long term achieve their goal to bring down capitalism. It is a complex, sophisticated scam that would make Machiavelli proud. And, it is working.

After his conviction for fraud, Bernie Madoff quipped that the biggest Ponzi scheme in history is the U.S. government. If he had given it more thought, he would have have narrowed his comment to the U.S. government under Democrats whose embrace of “The Deficit Myth” MMT nonsense put out by economist Stephanie Skelton persuaded them that they can spend as recklessly as they want as long as inflation remains tame. She is right about that, but inflation won’t remain tame for very long with the massive debts Democrats incur to buy votes, and while the Republicans are not much better in terms of debt, their policies do promote economic growth by incurring deficits not by rampant spending but by lowering taxes, putting the free market to work to find the right balance. Economic growth allows the debt to be serviced and ultimately repaid, while “redistribution of income” policies create nothing of value and curb growth by vilifying the entrepreneurs whose work expands productivity and claiming people are entitled to money they have not earned at the expense of those who have.

Milton Friedman is the only economist of the past century that got it right. The rest get tangled up in their underwear with half-baked theories about government controling the economy either with interest rates or deficits to stimulate growth during period of lower activity and higher taxes to lower those deficits during periods of activity, both policies exacerbating the economic swings in much the same way as one of those pendulum toys works, pretending it is a perpetual motion machine but ultimately grinding to a halt.

Governments target 2% inflation when the correct target is zero inflation. From 1789 to 1913, the U.S. government had no income taxes and inflation was essentially zero, yet the country had the greatest expansion in recorded history known today as “the industrial revolution”, and that inflation free growth was achieved in large part by capitalizing on the availability of cheap and reliable energy from coal, oil & eventualy gas and letting free markets work.

What changed after World War I was the emergence of socialism and Marxism and a belief that centralling-controlled economies could be managed by bureaucrats - an idea that has worked nowhere on Earth at any time in history.