On Wednesday, December 22, the United States Senate passed the much talked about Omnibus bill. It was 4,145 pages long, and it detailed discretionary spending totaling roughly $1.7 trillion. It will fund the government through most of 2023. Eighteen Republican Senators joined all 50 Democratic Senators in voting for the bill.
We’re not surprised. Back on December 11 in our article Mandatory Monies, we asked: “Can Congress and the President work together to reduce domestic discretionary and military spending? Unfortunately, there exists the real possibility that they will definitely work together, but only to increase both Domestic and Military spending… We predict that the Democrats will back an increase in military spending in return for an increase in the amount of domestic spending, and the Republicans will happily agree.”
We are sorry to say, but that is exactly what happened; for the bill provides for sharp increases in both military and domestic spending. Congress has agreed to spend $858 billion in defense spending, which is $45 billion more than what President Biden requested. Non-defense discretionary spending came in at $772.5 billion. Overall, discretionary spending is up 10% from last year.
That’s a huge increase, especially in light of the fact that the US Federal budget deficit set a record for the month of November at $249 billion! That is a staggering $56 billion increase over the previous year. Our government spent a massive $501 billion in November alone, but collected just $252 billion in revenue. That means that about 50 cents of every dollar spent were borrowed.
Senate Minority Leader Mitch McConnell led the Republicans who voted for the increased spending, bragging it would boost defense spending above the rate of inflation. Furthermore, he stated: “Providing assistance for Ukrainians to defeat the Russians is the number one priority for the United States right now according to most Republicans. "That's how we see the challenges confronting the country at the moment."
We think Mr. McConnell’s priorities are misplaced, and we agree more with Senator Rand Paul of Kentucky. “Overall, the bill contains $858 billion for defense - an increase of 9.7%, and $45 billion more than President Biden sought…What is more dangerous to the country? $1.1 Trillion in new debt or as Republican leadership likes to say, “Oh, it is a win! It is a big win. We’re getting $45 billion for the military…So which is more important? Which threatens the country more? Are we at risk of being invaded by a foreign power if we don’t put $45 billion into the military? Are we more at risk by adding to a $31 trillion debt?" Our answer is a definite yes. The real threat to our democracy is an over-leveraged economy that is burdened by a huge and growing debt.
Another Republican US Senator who voted against the large increase in spending, Bill Hagerty from Tennessee, perfectly articulated why it is so hard to curtail spending in Washington: “I serve on the Appropriations Committee. We have not met once this year to discuss any of the text of this bill. We were supposed to get text already. I haven’t seen anything. Maybe we’ll get something tonight, tomorrow, I don’t know. This process is broken.”
Why is the process broken? According to Hagerty, the Democrats have circumvented the regular Appropriations process: “As a member of the Appropriations Committee, I’m very upset about the way this has proceeded, and here’s why: the Democrats have had at their disposal a tool called reconciliation. They’ve used that to pass through this massive American Rescue Plan that was nothing more than a bunch of subsidies…massively inflationary at a time that we didn’t need it. And then lately this Inflation Reduction Act, which is really just the Green New Deal pasted with lipstick, that’s about $3 trillion that they’ve jammed into the economy without a single Republican vote. Certainly, that seems to be why they approve not going through regular process, not even close to any process at all. And here we are today—members of the Appropriations Committee have not met once to even see or discuss this.”
The saddest part of all this is that discretionary spending comprises only 29% of total spending. The other 71% are the entitlement programs that are mandated; they go on ad infinitum without debate and without a vote. That is not likely to change anytime soon. Baby boomers are the largest segment of the US population. They get most of the mandated benefits, and they vote. So unless Congress decides to curtail their benefits in programs like Social Security, Medicaid Medicare, Obama Care and the likes, mandate spending will continue unabated.
Therefore, government spending will continue to grow at a rapid pace, and the United States will continue to borrow huge amounts of money. In the short run, this will help support the economy, and it will tend to counter the actions of the Federal Reserve as it acts to curtail credit by raising interest rates. That’s one big reason why we think inflation will stay higher for longer.
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