Odd Alliance

The media and the GOP elites are apoplectic over Donald Trump's odd alliance with Democrats to create a short-term fix for the debt limit and consequent federal funding as well as move forward on immigration reform and DACA approval. Trump did this as a pragmatist—to remove the drama associated with the debt limit and government shutdown that would have pervaded Washington for the remainder of this month. He also did it to clear the way for an attempt at tax reform and to move the possibility immigration reform forward. It was possibly the best political move that Donald trump has made.

The GOP conservative wing do have a point when they emphasize when they note that the federal debt is very bad and getting worse and that there has been no real attempt at reigning in federal spending. But a point is all they have. It seems that GOP leadership and the elites of the party can pontificate about debt and spending, but can't accomplish anything tangible to reduce either. In essence, Trump just laid them off.

Maybe now the Congress can focus on tax reform and immigration reform, and later on crafting a health care approach that is not delusional. But the GOP seems unable to develop any legislation that is acceptable to all GOP members. With the continual opposition coming from the Dems, the GOP leadership is paralyzed. They tell us all how "hard" all of this is, but they've had years to develop a plan of action.

Although I am a strong proponent of bi-partisan legislation, the Trump administration must be careful. The Dems have never seen a big government program they didn't like; they are perfectly willing to bankrupt the country with ideas like universal healthcare (a.k.a., socialized medicine), and they demagogue any attempt at entitlement reform. Getting in bed with them may be pragmatic, but Donald Trump must be careful.

James Freeman comments:

Since Senate Republicans have proven unable to fulfill their signature campaign promise to reform the ObamaCare entitlement, it seems unlikely they would agree to reform any of the other entitlements that drive the federal budget, or to economize on discretionary items like hurricane response—unless they can gain more conservative colleagues in the 2018 elections. Reforming entitlements doesn’t seem to be a priority for Mr. Trump, either.

What’s certain is that the problem that concerns Mr. Barton isn’t going away. In its annual long-term budget outlook released in March, the Congressional Budget Office noted:

At 77 percent of gross domestic product (GDP), federal debt held by the public is now at its highest level since shortly after World War II. If current laws generally remained unchanged, the Congressional Budget Office projects, growing budget deficits would boost that debt sharply over the next 30 years; it would reach 150 percent of GDP in 2047.
This would be getting into Italy territory. A dysfunctional government carrying a debt load that heavy, on top of a slow-growing economy, would normally be cause to fear societal catastrophe. But thanks to the magic of modern government intervention, Italy isn’t yet serving as a cautionary tale.

In fact, flying in the face of all logic, the government of Italy now pays lower interest rates on the money it borrows than the U.S. Treasury. So do Spain and France and various other places that wish they had economies like ours.

How is this possible that investors demand more compensation to lend to the world’s superpower and leading economy than to the basket cases of Europe? The answer is that private investors aren’t really in charge. After the financial crisis, the European Central Bank didn’t start as quickly as our Federal Reserve in creating money to buy up government debt, but it has embraced the strategy with gusto. Governments around the world have managed to manipulate the price of credit and therefore the price of just about everything.

The Dem and GOP elites see nothing wrong with this approach—but it's a house of cards. At some point, the house will collapse and the damage will hurt the masses, not the political elites and their cronies who will have made moves to avoid the wreckage that the they themselves have created.