via David Stockman's Contra Corner
What a day for another $106 billion imperial boondoggle. There is not one dime in “Joe Biden’s” war package that enhances the safety and security of the American homeland, yet all of it is being blithely charged to Uncle Sam’s vastly over-extended credit card.
Nor should you take our word for it. What’s left of the Fed-tortured bond market cried out for help this AM, tagging the 5.00% level on the benchmark 10-year UST (purple line) for the first time since June 2007.
But here’s the thing. Back then, the public debt (yellow line) was $8.8 trillion, meaning every 100 basis points of increased yield added $88 billion to annual debt service. Today, of course, the public debt is $33.5 trillion, and the incremental debt service on 100 basis points will amount to $335 billion or nearly 4X more.
Public Debt Versus Yield On 10-Year UST, 2007 to 2023
Unfortunately, 100 basis points of higher yield isn’t the half of it. As of August 31st, the weighted average yield on the public debt was only 2.92% because during the Fed’s decade long spree of reckless money-printing the US Treasury was able to refi the public debt at absurdly low rates, including at the 0.50% bottom on the 10-year UST in July 2020.
Alas, what comes around goes around. Now the entire yield curve is trading at 5% or above, meaning that all of that ultra-cheap debt will be maturing for years to come, only to be replaced with much higher yields as far as the eye can see. At the moment, the gap between the embedded carry cost of 2.92% and an at-market level of @5.22% would amount to incremental debt service cost of nearly $800 billion per annum!
That’s right. There is a fiscal elephant in the room nearly the size of the nation’s monstrous defense budget itself, yet the semi-comatose occupant of the Oval Office chose this moment to indulge in the absolute worst game of log-rolling politics we have witness during a half-century of observation. To wit, the “Joe Biden” boondoggle includes:
- $61 billion for the Ukraine warhawks
- $14 billion for virtue-signaling against Hamas
- $14 billion for the GOP Border War Howlers
- $14 billion for various bleeding heart "humanitarian" purposes
- $3 billion of walking around money for all the squeaky wheels not oiled above
Still, do these clueless fools not understand they are now staring fiscal catastrophe square in the face? As of Q2 2023 the annualized rate of interest expense on the public debt clocked in at $909 billion, which represented a doubling of the level which prevailed when the voters last put a Republican in the White House to, well, rein in the red ink!
Annualized Rate Of Interest Expense on The Federal Debt, 2007 to 2023
Yet notwithstanding a thundering wake-up call from the bond pits, the following is absolutely certain to befall any courageous members of Congress who attempt to stop this absurd boondoggle: Namely, said Members will be viciously charged with being soft on Putin and indifferent to the heinous crimes committed by Hamas on October 7.
Needless to say, the Putin-baiting “Joe Biden” dished out yet again during his teleprompter read last evening is rank nonsense. The war in Ukraine is a territorial battle between pro-Russian and anti-Russian inhabitants of an area that has been a vassal or integral part of Mother Russia for centuries. And, yes, this dismal and unnecessary war most certainly was “provoked”, albeit by more than two-decades of Washington’s mindless attempt to bring Ukraine into NATO.
But President Kennedy settled that question in October 1962: Nobody puts missiles on our doorstep 90 miles away in Cuba, and the reciprocal is also true. To wit, Ukraine is 5,000 miles to the east of Washington on the far side of the Atlantic moat, but NATO missiles in Kharkiv would be 40 minutes from Moscow.
For crying out loud, the four provinces of the Donbas and the Black Sea Rim, which voted overwhelmingly to return to Russia in Putin’s referendums last fall, are identified as “Novorossiya” (“New Russia”) in pre-1922 maps of the region. So why are these provinces in Ukraine today?
Because one of history’s great humanitarians, V. Lenin, decreed these borders, which prior to his ministrations and those of J. Stalin had never before existed. Moreover, in light of that bit of salient history, why does “Joe Biden” want another $61 billion (on top of the $115 billion Washington has already wasted on Ukraine) to keep these Bolshevik Borders intact?
Self-evidently, the Washington neocons insist upon it, the defense contractors are luxuriating in it and the US military is getting a grand munitions and weapons testing range in the bargain. Then, of course, there is also the present-day variation of the domino theory. To wit, the Baltic states and Poland are allegedly next in line for invasion, according to Washington’s Sunday-afternoon warmongers.
To be sure, any assessment of Putin’s two-decade reign in Moscow may will conclude that he is no latter-day humanitarian or prince of men. But it would also conclude that he is by no means stupid and could not possibly see anything to be gained—except massive loss of his own military forces and treasure—attempting to occupy the Russia-hating Poland.
Besides, if even the Poles believed Washington’s idiotic propaganda about Moscow’s alleged desire to recreate the old Soviet Empire, they would surely have spent more than $15.1 billion or a mere 2.2% of GDP on defense in 2022. And even the increase of $7 billion in 2023 amounts to just 1% of GDP.
So are the Poles quaking in their boots about Putin’s design on their territory? No, what they are doing is quacking the NATO line in order to get access to the latest toys in Washington’s arsenal.
The real curveball in Joe Biden’s pork barrel package, of course, is the $14 billion for Israel. They flat-out do not need another dime from Uncle Sam to do whatever they determine is necessary to cope with the barbarians domiciled in the hell-hole known as the Gaza Strip.
After all, Israel’s defense budget of about $25 billion is nearly as large as the entire GDP of Gaza, which may amount to $28 billion according to the CIA’s own World Factbook. Stated differently, what passes for an economy in the shambles of Gaza is less than 5% the size of Israels booming, technologically advanced and robust $550 billion national economy.
And even if you throw in a few hundred million of aid per year from Iran and others that allegedly flows through Qatar to Hamas, there is simply no contest. Israel is an economic and military Goliath relative to the Hamas terrorist apparatus and does not need any virtue signaling from the politicians of the bankrupt state domiciled on the Potomac in order to handle their own security.
We continue to believe, of course, that Bibi Netanyahu and his rightwing religious parties have made a huge, historic mistake in not finding some way to achieve an internationally brokered and superintended two-state solution. And also, that by originally promoting and funding Hamas in order to kill a two-state arrangement, as Netanyahu clearly did, they have created the very Frankenstein monster that was more than evident in the murderous mayhem of October 7th.
But they have chosen, instead, to live in a Garrison State and to be periodically compelled to “mow the lawn” in the Gaza outdoor prison, which is the inherent result of their one-state policy. The corollary, of course, is that if Israel’s rightwing governments want a modern-data Sparta, they need to double or triple their defense budget from the current 4% of GDP, and sharply raise the tax rate on the Israeli economy, which has been falling for more than two decades, according to World Bank data.
Moreover, it is not as if Washington is not doing a whole lot already. The current Israel aid package is $3.8 billion per year in mainly military support, which accounts for nearly 16% of its current defense spending. And that needs also be viewed in the context of $318 billion in cumulative aid (2022 $) that Washington provided over 1946 to 2022.
At the end of the day, the Joe Biden war package tells you all you need to know about Washington’s utter dysfunction. That is, $61 billion for a war that undermines Homeland security, $14 billion to an ally that doesn’t need it, $14 billion for a Border War that could be ended with the large-scale Guest Worker program that America desperately needs and $14 billion for do-goodism in a world that has had more than enough of Washington’s good works for a long time to come.
So for crying out loud, Washington. Stop spending money that you don’t have on wars that America absolutely does not need!
David Stockman's Contra Corner is the place where mainstream delusions and cant about the Warfare State, the Bailout State, Bubble Finance and Beltway Banditry are ripped, refuted and rebuked.
