Since President Trump was inaugurated, the mounting debt (not as sexy a term as one would think) had been approaching the artificial debt limit imposed by Congress of $19.8 T (as in Terrible, Treacherous, Tragic, etc.) After months of the Treasury robbing Peter to pay Paul to prevent breaching the limit, last week Congress approved a ‘debt holiday’ (how can consumer debtors get in on that action?) which allowed the fiscal brain trust on Capitol Hill to borrow as much as necessary to keep the Government from shutting down. As we know, it would be the fault of Republicans if they had to close statues in open parks. President Trump signed it which marked the 3rd highest single day debt increase in American history: $318 Billion. President Obama still has the honor of owning the two largest day increases back in 2015 and 2011.
While Conservatives are quick to point to President Obama holding the most debt ever accumulated, from $10.6 Terribles in January 2009 to $19.9 Tragics in January 2017, the trajectory is continuing. The U.S. national debt soared past $20 trillion ($20,169,442,000,000) and fiscal conservatives are vocalizing what we have been thinking for quite some time: What purpose does a Republican serve anymore?
By the way, that $20+ Trillion doesn’t include unfunded liabilities, bringing the total U.S. debt to almost $68 Trillion… or, in real numbers: $67,817,488,000,000. In more stark terms: $208,135 per citizen, and $814,592 per family.
The numbers that matter even more is the debt held by the public as a share of the economy: In 2007 this was 35 percent. Ten years later, the public share of the debt more than doubled and is now 77 percent of the economy. The debt has not been higher since immediately following World War II. Donald Trump came into office with the highest debt as a share of the economy of any new president besides Harry Truman, who enjoyed booming growth as the U.S. assisted in rebuilding Europe. The CBO doesn’t show this trajectory decreasing anytime soon. In 2035, just 18 years, we are expected to surpass 106 percent of the economy.
$10T, $20T: At this point, what difference does it make?
Besides the sad reality that most people don’t care, or could even tell you who the Treasury Secretary is, remember that it’s the U.S. taxpayer footing the exorbitant bill for runaway spending.
1 – Cost of personal debt: Today’s artificially low-interest rates keep the payments on both the national and personal debt manageable. However, interest rates and ZIRP (zero interest rate policy) was meant to be temporary. Born out of the 2008 financial crisis, the economy is now addicted to low rates, and it won’t end well when rates do (and they must) eventually go up. Like the drug addict jonesing for their fix, once it’s no longer available, the dark side of dependency becomes clear. The cost of the debt will dampen any economic productivity and possibly send the U.S. into another recession or worse. The consumer will feel the pinch when their debt on homes, cars, education and credit cards go up, as will the United States Treasury on paying interest on their debt.
2 – Less Productivity: The CBO estimates the interest costs will triple in 10 years. It’s simple math really. Ever increasing payments to facilitate the debt stagnate not only the growth of the economy but also wages. This also impacts the safety net. Less money prevents government investment into new technology, science, and promising new ventures in the private sector resulting in fewer jobs. This ultimately can reduce the standard of living and cause America to become less competitive in the global marketplace while other countries forge ahead with new inventions.
3 – Worse Response to Natural Crisis.’ After two major hurricanes pounded the U.S. the cost of rebuilding will be immense, likely in the hundreds of billions of dollars. This money must come from somewhere. But natural crisis’ will happen again and again. We will have more storms, floods, earthquakes, etc. They are not preventable. An ever-rising debt will limit the ability of the government to respond directly to economic and external threats.
4 – Fiscal Crisis: Not to be alarmist, but this is an eventuality if the national debt is not restrained and reduced. Investors will cease to lend affordable money. If the government is unable to borrow cheaply the U.S. would see a flight of capital. We could see tanking equity markets, dramatically increased interest rates, rapidly increasing inflation, large losses in investments and real estate and the government would be required to implement austerity measures.
5 – Limited Solutions: The deeper we go, the fewer options will be available. TARP (Toxic Asset Relief Program) barely held the tattered economy together in 2008-2009 through a bungled, but ultimately cost-effective strategy of flooding the banking sector with liquidity. This forced large banks to gobble up small banks to become even larger, and therefore are now more unlikely to be able to be bailed out when the next financial crisis occurs. A TARP today would not be as effective while being vastly more expensive. Bank of America alone has a two trillion dollar asset valuation.
A pro-growth agenda will only be effective if it is paired with a strategy to reduce the debt.
While partisans will continually argue economic philosophy, the only sure way to effectively fix the debt is a pro-growth agenda (tax reform) while cutting spending. Unfortunately, that will require political courage that has not been demonstrated since George W. Bush attempted to tackle Social Security, which went nowhere fast.
Over the next ten years, 80 percent of government growth in spending will be on Social Security, health care and interest on the debt. Until politicians risk their own cushy jobs by educating what needs to be done (stop the automatic appropriations process of not touching these three massive debt generators) the ticking time bomb will only get closer to exploding.
Art by Michael Ramirez.