Maya McGinnis (2:27)

Thanks. Thanks for having me.

John Bickley (2:29)

So first tell us, what exactly is the Committee for a Responsible Federal Budget.

Maya McGinnis (2:33)

Other than a mouthful of a name? Yeah, it's a bipartisan nonprofit watchdog group. Basically we're very concerned about fiscal policy, meaning how big our debt and deficits are. Doesn't have a political agenda at all. I'm a political independent. Our board and our staff is across the political spectrum, but deeply concerned that our political environment now focuses on borrowing when we shouldn't be because of the political benefits of not actually dealing with trade offs. And that that concern has been growing over time.

John Bickley (3:04)

Yeah. And I wanted to ask you exactly about that. You've been warning about borrowing. Why is this growing debt so dangerous for the US Economy? What specific ways will it actually impact Americans?

Maya McGinnis (3:16)

Yeah, I think that one of the biggest challenges about this whole issue is that it's really not something that feels directly related to us as individuals, but it's directly related to everything we care about. So the fiscal health of the country is really the underpinning of both our economic and our national security strength. So if your debt is too high, and ours without question is every warning sign that there is is blinking bright, bright red right now. But if your debt is too high, it actually means that the government borrows so much money it squeezes out the investment possibilities in the private sector. This is slows growth, this slows productivity, it pushes up inflation, up interest rates, all sorts of things that slow economic growth, which translates into lower wages, lower standard of living, less job security, nothing good on the economic front. That's 1, 2. It means that our budget has huge pressure because interest payments start to absorb more and more of our resources. Whether you want huge tax cuts or huge growth in spending, like we can fight about those things, but interest payments get the funds first claim on the dollar in the budget. And that's becoming, it's right now it's our second largest item in the budget, single fastest growing item. It also means that when we have national emergencies where you should be borrowing, it's more difficult to do so. And it means that it can. Like if you're trying to fight a recession or a pandemic or a national emergency, you may have skyrocketing or, you know, high pressure on upward interest rates when you're trying to borrow. Whereas if your debt's lower, that doesn't happen. But it's also expanded now where it's not just an economic issue, it is a national security issue. We are borrowing from Countries with whom we are not aligned. We are not able to make our own national security decisions, just from a strategic and security perspective. We have to think budget about budget resources and you don't want to be in that position. So it weakens our ability to respond to emergencies, take advantage of opportunities. But bottom line, we can do fewer things and we become poorer as a nation. And finally, I guess for those people who worry about the next generation, it's really, really posing a generation that's already facing so many challenges, such a much more difficult and fast paced changing world where we have tied up their budget with interest payments and promises to seniors and they don't have the fiscal flexibility to respond. And they owe a whole lot of debt because of borrowing that we took on.

John Bickley (5:33)

Like you said, it's insidious because you don't feel a lot of these effects. It's a lot of things that we can't do that we could have done if we had more money available. So you don't realize how much we're missing out on in terms of investment in private companies and things like that and then kicking the can down the road. We're not feeling it now. Our kids will feel it, their kids will feel it. Is there any progress, do you feel, in Washington to paying attention to this? Do we see any progress at all?

Maya McGinnis (6:01)

Yeah, it's so discouraging, honestly, because the situation is getting worse. Our debt to GDP is getting worse, our annual deficits are getting worse. And this is outside of emergencies. And frankly, our political environment and a willingness to talk about this honestly is much, much worse. We're so polarized. You have both parties basically fighting with each other by giving away more things. I'll give you tax cuts. No taxes on this. Oh, well, I'll give you bigger tax cuts and I'll increase the spending. I'll also increase the spending. It used to be that you thought of Republicans as wanting tax cuts and Democrats as wanting spending increases. It's literally now both. So they fight for these huge giveaways. So no, frankly, the situation is very troubling, both from an economic national security, but also political perspective and internally because it's frustrating to work on an issue where, you know, we're not going to have the big debt deal that we really need to have this year, for instance, a lot of times the best we can do and sort of why, why we're able to pat ourselves on the back for some work is when things would have been worse without the kind of fiscal pressure we put on. But it's really frustrating to say, well, we borrowed $1 trillion, but we might have borrowed a trillion and a half if it weren't for our pushing against this issue. We've got to do better than that. We've got to start actually turning the ship around and bringing the debt as a share of GDP trajectory down instead of continuing to grow it.

John Bickley (7:22)

I wanted to ask you about the debt ceiling in a second, but first, President Trump has put a lot of pressure on Fed Chair Jerome Powell over the interest rate. How does the interest rate play into all this?

Maya McGinnis (7:33)

Well, basically you can think of what we've done to ourselves as though we've signed the government, the whole country up for a huge credit card teaser rate. And we are about to get hit with a real problem. I think the pressure on the Fed is very counterproductive. I think that the Fed needs to control inflation because inflation is one of the most damaging things we can see. See from the excessive borrowing that we've had. We saw that when we hit 9%, we don't want to see higher inflation again. We are incredibly vulnerable to higher interest rates. The reason there's upward pressure on interest rates is because we're borrowing so much. But if interest rates go up by just another 1 percentage point above what they're expected to, that leads to $300 billion a year in additional borrowing on top of the almost $1 trillion a year we're already paying for borrowing costs. So that is what's so dangerous, that when interest rates go up, we owe so much more in interest payments. But what concerns me is that the Trump administration and others, they're trying to find ways to increase the demand for Treasuries. So there's some policies that are being changed, the maturities on the debt that we're issuing, other things that will create higher demand for Treasuries. What we really should be doing is creating a lower supply. If we're weren't auctioning off so many Treasuries because we had to finance such a big deficit that upward pressure on interest rates wouldn't occur and we could actually help the Fed do their job of fighting inflation instead of making fiscal policy make their job even more difficult.

John Bickley (9:01)

So I hear you correctly in that there is some logic in the idea of lowering interest rates so that our own debt is paid off easier. Is this correct in terms of the federal government or my misunderstanding that?

Maya McGinnis (9:14)

Okay, yeah, so we would like to have lower interest rates, but they won't really happen just because the Fed lowers the short term rate. That won't do anything for the important rates which are longer term like 10 years, things that affect your mortgage for instance. The only way we do that is by controlling our macro economy and issuing less. Like the more we're borrowing, the more the people who lend us money domestically and internationally are going to demand higher interest rates to deal with the risk of all the Treasuries that we are auctioning off. You can't kind of cheat those real interest rates by asking the Fed to push down low term rates. It won't work. And that's when you see the higher, the higher rates in the ten year and the things that we keep an eye on as a result. So the most, the best thing the Fed can do is keep its credibility and control inflation and not let political pressure in any direction affect its decision making.

John Bickley (10:06)

So the most important thing is responsible handling of the economy and managing of the economy for that, that confidence in our economy to be maintained internationally.

Maya McGinnis (10:16)

Yeah. And also remembering there's different, there's different time windows for things. So the political cycle is very short term. You always want it now. That's what we borrow today. And don't worry about the future. The Fed is one of the institutions that we hope is keeping an eye on the long term as well. Knowing that if we make these short term expedient decisions now can harm the economy in the long term. And, and that is one of the most important things that they can do. But security, reassurance, independence, those all have to be part of, of the Fed's mandate.

John Bickley (10:46)

Now the debt ceiling has been a major topic in D.C. in this last, well, forever it seems like now, but we really had a battle over it this last year. We continue to raise the debt ceiling. Is there anyone to actually stop that trend? How should we approach that conversation?

Maya McGinnis (11:05)

So what's important to understand is that the debt ceiling is really, it's kind of ill constructed in that we pass legislation where we approve of borrowing. We just passed a big tax cut bill that's going to add $4 trillion, over 5 trillion if some of the policies are made permanent to the national debt. So you pass that bill and then later, and in fact in this bill they did include increasing the debt ceiling quite, quite significantly. So that will last for a couple of years. But then you have a separate vote generally on whether to lift the debt ceiling. And what we often have is people saying I am voting against lifting the debt ceiling because I don't want more borrowing. Well that's great. Unless you've just voted for legislation that actually has the borrowing. And we've seen that time and time again. So what would really make sense is if we have the debt ceiling as a part of any vote to increase the debt. So you have to say I am passing legislation that would increase our borrowing and therefore I'm also increasing the debt ceiling. My, my pitch to everybody would be, how about we make a commitment. No new borrowing, no more legislation that does increase borrowing. Let's focus our attention on how to get control of this for again, so many of these reasons, from economic to national security, to intergenerational fairness to being prepared for emergencies. Let's make a commitment that there's no new borrowing, but the debt ceiling doesn't control it. So it actually ends up having us focus on the right thing, but at the wrong time after the fact.

John Bickley (12:31)

Do we have some good models of this actually taking place within the country? Some states that are handling this well, that the federal government could emulate, the.

Maya McGinnis (12:40)

States have a much stricter requirements on them, where the vast majority of them have balanced budget requirements. Now, there's a huge loophole, which is that doesn't count for capital investment or borrowing for what are called investments. And oftentimes you see everybody's favorite project being called an investment, but at least in its attempt to limit it. And I do think there's a good model there, which is we can start to put in some fiscal constraints on the federal level. So, for instance, when you pass a budget, and craziest thing about all this is that we actually don't pass real budgets at the federal level anymore. More often than not, we either don't pass a budget at all and just use something called a continuing resolution, or, or we pass a budget like we did this year fully for the purpose of allowing tax cuts, but not even looking at the rest of the budget. But we should pass budgets each and every year. Every business has to, certainly every country should. But within that, we should also have fiscal limits. So right now our Deficit is about 6% of GDP. Many people, including the Secretary of the Treasury, Ray Dalio, other experts, many outside groups, including us, I think we need to really pick an important fiscal target of, say, bringing that deficit from 6% of GDP down to 3% of GDP. We should embed something like that. Pick whatever goal makes sense. It used to be balancing the budget. Sadly, we're so out of control now that we're not going to be able to balance the budget in a reasonable amount of time. So we need a more modest goal. But say we pick 3% of GDP, that should be embedded in the budget. And every, I believe every lawmaker who has a fiduciary responsibility should support a budget that gets to 3% of GDP. We can look at all the different options and then figure out how to work out the differences and do something we're not very good at in Washington, but try to compromise on that. But right now the budgets don't have any constraints and that's one of the big problems right there. So, yes, learning from the states that you have to have some kind of fiscal constraint, I think is an important lesson.

John Bickley (14:37)

A final question. Do we see any evidence of that kind of momentum in Congress? Is any congressional leader actually working on something to that effect or that might get us at least make some progress in terms of this debt problem?

Maya McGinnis (14:52)

You know, there really is progress. There's a lot of progress, both on individual members who care about this, but also groups that are popping up. There's one that we work with, the Bipartisan Fiscal Forum in the House, which is a bipartisan group working on this. Problem solvers, lots of different leaders who care about the issue. There's a lot of things they're focusing on. I think the most important one, we just talked about picking a fiscal goal and working on that. Second, there's been broad based support, bipartisan and bicameral, for a fiscal commission, something that would bring together a bunch of members and have them work for a year on understanding the different priorities, the trade offs, the actual numbers. They need some time to really dig into this. And I will tell you, once you do, you don't walk away thinking we can ignore this problem. You know, we need to work on it and come up with a lot of solutions that then there would be an up or down vote in Congress that gives some political cover. So a fiscal commission, I think has a lot of promise and luckily has a good deal of support. Third, we have got to do something about Social Security. Social Security, the largest program in the country. 70 million people depend on it. It is going to be insolvent in seven years, at which time when we can't afford to pay benefits, there'll be across the board benefit cuts. We need to get to work fixing Social Security as quickly as possible.

John Bickley (16:07)

Well, let's hope we do see some real progress on all of these issues. Thank you so much for taking the time to talk to us.

Maya McGinnis (16:13)

Thank you so much for having me.

John Bickley (16:15)

That was Maya McGinnis, president of the Committee for a Responsible Federal Budget. And this has been a weekend edition of Morning Wire. These are questions that take cultures thousands of years to answer. During Answer the Call, I take questions from people just like you about their problems, opportunities, challenges or when they simply need advice. How do I balance all of this grief, responsibility?

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