The inflation rate is high and the growth rate is low: David Malpass

Tale joining us now, Brian Riedel, senior fellow at the Manhattan Institute, and David Malpass, former president of the World Bank Group. So, Brian, I know you wrote about this in New York Post today. I mean, you know, I don't remember the exact phrase, but the late economist Herb Stein used to say, you know, if something is unsustainable, it won't be sustained, or if something is bad, it can't keep going on or something like that. My point here, Brian, is with these horrendous numbers without of control, federal finances, without of control, big government spending and borrowing and regulating, they're going to be consequences. We may not see them right this moment, but they're going to be consequences. There's inflation risk, there's interest rate risk, there's default risk. There's all kinds of risks. What do you think, Brian? The interest cost and the interest rate risk is enormous even under low interest rates. Interest costs have gone from 350 billion when Biden took office to a trillion dollars by next year, when it'll be the second biggest item in the entire budget after Social Security. And interest costs are going to $2 trillion a decade from now. Now, that's the low interest rate scenario. If interest rates go up one point, the deficit goes all the way up over $4 trillion from a 3.8 trillion at current interest rates under current policies. And a decade from now, you're looking at 37% of all federal taxes just going to pay interest on the debt. That means all the taxes you pay Washington for the first four months of the year will be paying interest because it will come to dominate the federal budget. The danger is when you run up a $50 trillion debt, you become extraordinarily sensitive to interest rates or even one point adds a adds hundreds of billions per year, which is possible, which is very possible in the current environment with all this federal borrowing. And then they're doing it at the short end of the curve. They're doing it for the 91 day Treasury bill. I'm not sure I understand why, but it's the highest borrowing cost. You could do it 100 basis point lower. I mean they they should issue 100 year bonds. But that's the subject of another segment. David Malpass though, you know what is as as troubling as any of these numbers, David? This is like the growth of government, the command and control of government, the government regulating the economy, the size and scope of the government regulating the economy, whether it's taxing or ordinary regulations or, you know, DEI or woke or ESG or any of these other left wing nostrums that we've had to live with for the past four or so years. This is big government socialism, to use Newt Gingrich's term. And I don't think it's going to turn out well if it doesn't change. David Malpass that's that's right. It's already not turning out well in that you look at the inflation rate, which is high, and the, the, the growth rate, which is low. You know, in the CBO numbers, they're showing 2% per year out into the future. And that's part of what's driving up that national debt. The economy is just not growing. So two things that stand out to me in the CBO numbers are the lack of growth and also the hammer blow on young people in the country. The government borrows the money, it spins it, and young people will end up having to pay it. So it goes into this affordability crisis that they're facing. I think that's an important point, the affordability crisis. And David, it just as a follow up, you know, all these government programs, I mean, a lot of these are pandemic related programs that the Biden continued. A lot of these are climate change electric vehicle programs that the public doesn't want. Some of them, you know, these student loan estimates, OK, they just tacked on, I think a $400 billion loss. Some people have estimated that if Biden got what he wanted, which the Supreme Court has deemed illegal, but if he ever got what he wanted, it would be a $1 trillion loss over 10 years. That's also. But David, you know what? Who's running the ship up here? Whatever happened to free market capitalism? In other words, my point is this is a big government run economy. And when you experiment like that, where it's socialist or quasi socialist, this is not the animal spirits, there's not innovation. This is not free enterprise. This is just frankly not prosperity. And there's, see what I'm saying? This is the triumph of government. And I don't want the triumph of government. I want the triumph of a free enterprise system. The the The numbers are staggering. They increased by $400 billion this year's fiscal deficit just since February. And as the government spends more, it plows it into making more regulations that strangle business. So as as we look out over 10 years, these new CBO numbers, it looks to me like have $120 trillion of spending by the government, $90 trillion of taxes, which is the historical average. So it's not a tax problem. It's the it's that spending is completely out of control. And the more they do, the bigger it makes the government and it slows the economy down. That's what shows up in the numbers. Trump can change that. But, you know, budget is more of the same. It looks for slow growth and very large increases in spending. It's more of the same. It's higher taxes. That's why there's no confidence. But Brian Riedel, you know, my former boss, Ronald Reagan, used to say, OK, you've shown me the manure, now where's the pony? So I want to figure out a way to get out of it. I don't want to leave our viewers and listeners completely depressed. I don't want anybody jumping off a Cliff. I don't want that on my conscience. How do we get out of this, Brian? Give me a couple of four instances. Well, the first rule of holes is stop digging. And so the first thing Congress can do is stop passing big spending bills. And, and coming up next year, we are going to have the discretionary spending caps coming up. The infrastructure bill is going to expire. The debt limit is coming up. The the 2017 tax cuts. There's going to be so much expiring for renewal next year. Congress will have a chance to set the course differently. But ultimately the main drivers of long term deficits are Social Security, Medicare, interest. And I know a lot of viewers don't want to hear about that, but it's going to be really hard to bring back the budget deficit to normal levels without addressing Social Security, Medicare and interest shortfalls. Well, with that, with that, addressing the big entitlements directly, I would just say growth would help. I mean, the difference between 1.8% growth and 3% growth is enormous. I mean, many trillions of dollars over a 10 year. But the other thing is, David Malpass, you know, how about getting rid of the entire Inflation Reduction Act? Just get rid of it all right? Now, I'm not saying it's easy, but you, you're going to have a reconciliation budget deal next year, All right? If Republicans take the Congress and the White House get rid of it, it's over a trillion dollars. Get rid of it. Go back and start cutting in to some of these other bills that were passed. The CHIPS Act was way too generous. The infrastructure bill was way too generous. What are they doing, $50 billion of Internet broadband for poor communities. Not a nickel has been spent because it didn't meet all the DEI qualification. I mean, there's a lot of garbage that could be paired back. OK, Plus some pro growth tax cuts. A lot could be done. David Malpass That's right. And so I have an idea, which is when you're over the debt limit, you have the president has more authority to impound money and to do line item veto. So I think we need process control change in the process that when the debt to GDP ratio is too high that there that it punishes Washington. Right now what Washington does is punish the whole country when they spend money. And so there there needs to be a change I think in the checks and balances so that the whole system works better. Otherwise what we're facing is a perfect storm next year. You named it. The debt limit comes due, the spending runs out in the tax. The taxes go up automatically. And so that the president should be talking, President Biden should be talking about that all the time, how he's going to fix that problem, but he doesn't have any answers. No, no, he has more of the same. It is time for change. I know a fellow who was president once who is just getting ready to become president again. And he's got some very clever ideas about how to stop all this stuff before it really gets bad. Anyway, Brian Riedel, thanks ever so much. David Malpass, appreciate it.