The more things change in Washington, the more they stay the same.
Under the new leadership of House Speaker Mike Johnson, Congress passed a stopgap funding bill on Tuesday to once again avert a government shutdown. It was quickly approved by the Senate on Wednesday, then signed into law by President Joe Biden.
Like the last one, this latest bipartisan budget scheme includes no spending cuts. So once again, deficit hawks are left feeling betrayed – not to mention alarmed at the country’s worsening fiscal trajectory.
Following the deal, Representative Chip Roy of Texas unloaded on his fellow Republicans in a blistering House speech. Chip Roy (R-TX):
Is $34 trillion of debt, not enough. $2 trillion deficits (a year), not enough. We have bills trying to cut spending, and we have games being played by appropriators right here.
Sitting in the Rules Committee night before last, I had appropriators looking at me and talking about the side deals that were cut to keep spending money to set up funds and slush funds. That's the way this town operates. Slush funds, backroom deals, continuing to spend money we don't have. I'm sick and tired of it.
I didn't come here to have the speaker of the house assume the position, and in 17 days pass a continuing resolution off the floor of this house through suspension of the rules.
I want my Republican colleagues to give me one thing. One that I can go campaign on and say we did. One. Anybody sitting in the complex, if you want to come down to the floor and come explain to me one material, meaningful, significant thing the Republican majority has done besides, “well, I guess it's not as bad as the Democrats.”
Business-as-usual politicians are stubbornly refusing to change course even in the face of budget deficits now projected to exceed $2 trillion.
They were also unmoved by last Friday’s warning from credit ratings agency Moody’s. It lowered its outlook on U.S. Treasury obligations from “stable” to “negative.”
For now, it still assigns a coveted AAA credit rating to the U.S. government. But earlier this year Fitch joined Standard & Poor’s in revoking the AAA status of Treasuries. Moody’s could follow suit at any time.
Biden administration officials including Treasury Secretary Janet Yellen came out with statements complaining about the latest jab at U.S. creditworthiness. They insisted the economy is strong enough to support government borrowing and that Treasuries remain safe.
But if the economy is so strong, then why are the deficits getting so big? Even under the Keynesian economic theories that justify Big Government interventionism, the government is only supposed to be running up large deficits to help lift the economy out of recession. During times of prosperity, deficits are supposed to narrow rapidly toward a balanced budget.
That’s obviously not happening now.
Bizarrely, though, President Biden has repeatedly touted deficit reduction as an accomplishment of his administration. Apparently, he would have the American people believe that annual budget shortfalls of $2 trillion would be even larger if it weren’t for Bidenomics!
Meanwhile, Bloomberg reports that the annual cost of interest on the national debt has now soared to over $1 trillion. That’s double from just two years ago.
The political class is only beginning to reckon with the consequences of unsound fiscal and monetary policy. Even if voters don’t punish politicians for running up the national debt to well over 100% of GDP, interest rate and currency markets ultimately will.
The U.S. Dollar Index slipped this week, though largely as a consequence of the Consumer Price Index coming in lower than expected. The CPI ticked down to an annual rate of 3.2% -- still well above the Federal Reserve’s 2% target, but the slight improvement might give policymakers all the justification they need to avoid raising the Fed funds rate again.
Expectations for a more dovish Fed prompted currency traders to sell U.S. dollars in foreign exchange markets. That helped send precious metals markets rebounding sharply.
Bulls are still looking for a year-end rally to redeem what has been a choppy market for precious metals in 2023. Obviously, the $2,000 level for gold is significant. The monetary metal has traded above it multiple times over the past few months but has been unable to hold there for long.
More sideways action heading into 2024 wouldn’t necessarily be a bad thing, either. If gold prices finished the year exactly where they are trading now, then investors would be able to book an annual gain of about 9%.
More importantly, 2023 would go down in the record books as producing the highest-ever year-end closing price for gold. That would be a very constructive place from which to start trading in what could be a pivotal election year in 2024.