source avatarSteve Miller

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Calling current US fiscal policy "Keynesian" fundamentally misunderstands what Keynes wrote. What Washington is doing today is far more dangerous. I have been a long-term critic of Keynes's philosophy. Our government now is far worse. Keynesian economics required fiscal discipline during expansions. Deficits were meant for severe downturns to support collapsing private demand. Once the economy recovered, governments were supposed to run budget surpluses, pay down accumulated debt, and build reserves for the next crisis. It was a complete cycle with an active brake. Washington kept the spending and permanently discarded the discipline. The US economy has operated near full employment for years, yet the federal government continues to run annual deficits hovering near 6% of GDP. Adding roughly $2 trillion a year to the national debt during an economic expansion is reckless fiscal policy. This model creates three immediate vulnerabilities: The reserve capacity is gone. When the next severe shock hits, the Treasury will have exhausted its balance sheet flexibility. Expanding borrowing from this baseline risks an outright sovereign debt auction failure. Interest costs consume the budget. Net interest payments on the debt now exceed $1 trillion annually, overtaking major domestic programs and defense spending. New debt issues simply service existing borrowing. The math forces a destructive exit. An economy cannot outgrow debt that compounds faster than nominal GDP. The historical resolutions for this pattern are severe inflation, forced financial repression, or a disorderly currency devaluation. Keynes warned that running continuous deficits during periods of growth inevitably destroys the currency and destabilizes the financial system. Current US policy is not economic theory. It is a political refusal to balance the books, and the eventual reckoning will be chaotic.

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