A Stitch in Haste

No sooner did the Senate "find" $39 billion to trim from the "untrimmable" federal budget than that very same Senate proceeded to "find" new ways to spend it:

Senate Majority Leader Bill Frist, R-Tenn., is a top sponsor of the $4 billion avian flu plan, which would direct $2.8 billion to developing medicines and vaccines to combat the flu. An additional $1.2 billion would be earmarked to otherwise prepare for a potential pandemic.
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Not to be outdone, Health, Education, Labor and Pensions Committee Chairman Mike Enzi, R-Wyo., moved in with a $2.7 billion plan to lower student loan processing fees and provide aid to students and schools in the hurricane zone.

Save a buck, spend a buck. Tax a buck, spend a buck. Borrow a buck, spend a buck. And all the while promise two bucks more tomorrow. Because, after all, eight trillion dollars isn't really that much.

And besides, tax reform will save us by "broadening the tax base."

Heaven help us.

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Meanwhile, the Federal Reserve raised the fed funds rate for the twelfth consecutive time, to 4%.

Not too long ago, the ten-year Treasury note was below 4%.

Many people claimed that the yield curve, which in a rational economy must slope upward, would continue to flatten and possibly even invert as fed funds reached 4%. This anomaly would be possible, they maintained, because people here and abroad would simply love to keep loaning our government money at such a low interest rate. Forever and ever and ever.

Well, the fed funds rate is now at 4% ... and the 10-year is not at 4% but 4.56%. The yield curve triumphs again.

As does the rule that, if the government keeps running budget deficits, sooner or later interest rates simply must rise. The laws of supply and demand, um, demand it.

Keep that in mind when your hear claims that "there is no fat left" in the federal budget, or that "deficits don't matter," or that eight trillion dollars is no big deal.