Those paying attention know the so-called “national debt” crossed the $30 trillion mark in late 2021 and has continued to steadily climb since. With trillion-dollar annual deficits having somehow been allowed to become the norm, less than two years later the number has passed $32.5 trillion. Growing almost $8,000 per second, or just under $29 million per hour, our individual “shares” of the debt now stand at just under $100,000 apiece.
The bad news is, it’s going to get worse. And the bad, bad news is this isn’t even the “real” national debt. As will be shown, Washington’s liabilities are actually several times larger than stated.
First, with regard to things getting worse, it is difficult to do justice to just how much the last dozen Congresses have run the fiscal ship of state aground. For some perspective, at the turn of the century the debt was just about $5 trillion, the budget was approximately $100 billion in the black, and the individual share of the debt was a shade under $18,000. Since then endless wars, new social programs, and growing entitlement spending have done irreparable damage to the state’s finances, with consecutive Congresses failing to produce a single surplus, or even balanced budget, in over 20 years.
Even worse, this borrowed money was spent in the most frivolous ways—what return on investment did the multi-decade Iraq War generate? Afghanistan? What about the huge slices of corporate welfare doled out to Wall Street, or the pharmaceutical, prison, and defense industries? At a time when interest rates were held far below trend by a combination of deliberate Federal Reserve policy, gains due to globalization, and a surfeit of global savings, it was as though every member of Congress had taken the words of then-Vice President Dick Cheney to heart, that “deficits don’t matter,” and set about enriching themselves and their friends at little to no immediate cost.
That’s public choice theory in action, folks.
The cost of their profligacy, already apparent to any normal person, is only really now coming into focus in DC, however. Now that asset price inflation has been joined by consumer price inflation domestically, and global circumstances have changed, with increasing retirees and less appetite for U.S. Treasuries, the Federal Reserve is no longer able to hold interest rates low; and this is raising the cost of servicing the existing debt fast.
And this isn’t a problem strictly confined to new borrowing; more problematic is rolling over the roughly 30% of the existing U.S. debt that is short-term. Just consider that refinancing their borrowing at the newer, higher interest rates of the past year resulted in an explosion in the cost of servicing the debt: a 35% year-on-year increase. In the years that come, the now-horrifying 2% of GDP that already goes to debt service will only grow. Already the fastest growing category of the Federal budget, the Peterson Foundation projects it will eventually become the single biggest outlay.
In short, people like Nancy Pelosi, Mitch McConnell, Chuck Schumer, Kevin McCarthy, Barack Obama, and George W. Bush have retrospectively made the likes of the elder Bush, Bill Clinton, Newt Gingrich, and Tom Daschle look like geniuses—no easy thing.
The second thing to consider on the topic of the national debt is that the numbers above are based on the principles of cash accounting; what’s gone out and is going in and coming out right now. On the other hand there’s to accrual accounting, the total debits and credits on the books, past, present, and future. Totaling up all the promises Congress has made, one finds there are already unfunded liabilities totaling roughly some $120 trillion. That’s right: your future share of the debt is already around $800,000, and with entitlements remaining an untouchable third rail of American politics it is only going to climb.
While any CFO who tried to use cash accounting would likely be convicted of fraud, the U.S. government obviously plays by its own rules. Certain rules, however, even Washington can’t break. One is that printing more money isn’t going to solve the problem. Sure, they’ll be able to inflate away some of the value of what is outstanding; but at some point, there just isn’t going to be anywhere left to turn and they’ll either have to default, hyperinflate, or try massively expropriating the private sector through insane levels of taxation.
Despite what the TV told you a few months ago, the United States has defaulted on its debts several times.
As the author has argued elsewhere, it should be made to do so again.