US share markets have reached record highs, anticipating all the extra borrowed cash soon to be sloshing around.
Already, the US faces nearly the highest debt-servicing costs of advanced economies, with yields on its 10-year bonds around 4.3%.
Only New Zealand and the UK are seen as worse risks, paying around 4.6%. Most advanced economies pay around 3%.
US debt-servicing costs will now double through the 2020s, to a record 4% of GDP, more than it spends on its military, and then hit 6% by mid-century, before surging higher.
For context, all US borrowing for World War II cost it less than 2% of GDP in debt servicing through the 1950s, and winning the Cold War cost about 3% through the 1990s.
As with earlier empires, it will be US fiscal degeneracy, not military failure, that sees it surrender to its emerging rival.
The Chinese Communist Party thus stands ready to inherit global hegemony because the small group of low-information swing voters who decide US elections refuse to choose between paying higher taxes or cutting government spending.
Despite the three dissenting Republican senators, the bill passed the Senate 51-50 on Vice-President JD Vance’s casting vote.
The final Senate villain was Alaska’s Lisa Murkowski, who sold her vote for tens of billions of dollars of extra taxpayer indulgences for her state.
There remains an outside chance that enough fiscally responsible Republicans in the House of Representatives have the political guts to kill Trump’s bill over the weekend, New Zealand time.
Trump will then try to destroy their political careers by arranging Republican challengers in their next primaries, but they would at least go into retirement knowing they had done whatever they could to defend the US economic - and thus military and cultural - leadership from China’s challenge.
The US fiscal self-destruction is more wanton, but New Zealand will manage to surpass it through procrastination and incompetence.
The US has got itself into this mess without having the comprehensive, publicly funded pension or healthcare systems that we currently enjoy, making its debt track less affected by the ageing population. Its immediate problem is the slim majority of voters who re-elected Trump, despite his promises to worsen the reckless fiscal approach of his first term.
In our case, we’ve all known about our looming crisis for decades, but in 2008 both main parties abandoned the efforts of the previous 18 years to prepare for it.
As in the US, the small number of swing voters who decide our elections deny a majority for either a small-government or big-state approach.
There might be a near-majority of people who want tax cuts and accept the smaller government that comes with it. And there might be a near-majority of those prepared to pay higher taxes as the price of more spending.
But there is not an actual majority for either, with the crucial 10% of swing voters demanding both lower taxes and higher spending.
Yet it’s to them that our two main parties feel forced to pander, at least since they finally worked out the MMP game a decade after its adoption.
Unlike the US, our superannuation and health systems mean our books are highly vulnerable to the ageing population, as we’ve been warned for decades.
As measured by the Committee for a Responsible Federal Budget, US federal debt is already at 100% of GDP and heading to 125%. Even though our gross debt may still only be around 50% of GDP, our debt curve remains on track to pass the US in the 2040s.
Dogged determination by Herald political editor Thomas Coughlan has finally forced the Treasury to release pre-Christmas advice to Finance Minister Nicola Willis that every area of Government spending will need to be cut by 2038 under current superannuation and fiscal policies.
While the Government redacted about 80% of the paper, it still revealed that health faces a shortfall of $10.8 billion in today’s money, when today’s 52-year-olds will be turning 65.
Law and order, education, transport and welfare would all face similar jeopardy, and there is no room for defence to reach the old Nato guideline of 2% of GDP, let alone the new one of 5%.
Instead, defence spending would be only 1.1% of GDP, jeopardising New Zealand’s alliance even with Australia.
These numbers were revealed in the 20% of the paper that the Treasury has been forced to reveal so far. Coughlan has now asked the Ombudsman to consider whether to force it to release the presumably even more fiscally alarming and politically embarrassing 80% that the Government wants to keep secret.
When the Treasury started publicly warning about the looming fiscal crisis 20 years ago, the Key Government tried to play down the rigour of the forecasts and claimed that no Government would let the disaster unfold anyway.
Yet, of all the numbers that the Treasury produces, those concerning the long-term fiscal outlook have proved among the most stable.
Far from not letting the disaster unfold, the Key-English, Ardern-Hipkins and now Luxon Governments have all done exactly what the Treasury foresaw.
Even now, National’s policy is that there should be no change to superannuation until today’s 45-year-olds turn 65 in 2044, well after the debt and debt-servicing spirals have become irreversible.
Willis, though, continues the tactic of her mentors, Sir John Key and Sir Bill English, by playing it all down. Commenting on the $10.8b health shortfall that Coughlan revealed, she said the forecasts did not take account of future decisions that ministers would take.
“In reality,” she said, “future governments will take active decisions to allocate resources to those areas they want to protect – and, if I am Finance Minister in 15 years, that will most certainly include health – and away from those they think are less of a priority.”
That only makes things worse, since it confirms Willis will never cut superannuation or health, while big funding shortfalls in everything else, including law and order, education and defence, are already built in.
Perhaps we shouldn’t feel too superior to the US Republicans after all.
