The Runaway Federal Debt

35 Trillion and Counting

Not long ago, in the Summer of 2017, we Americans were marveling at the prospect that the Federal debt would soon reach $20 trillion. Just a few short years later we have not only reached that milestone, but have increased the debt by another 75%. And in just three more years, the U.S. national debt will surpass $40 trillion–more than doubling since 2017.

The federal debt today stands at $35 trillion and is increasing at a rate of $330 million per hour. That’s $7.9 billion per day and $2.8 trillion per year.

Per person, the share of federal debt is more than $100,000 and $265,000 per taxpayer. Add to that the $75,000 in personal debt that the average citizen already owes, and you have an insurmountable fiscal problem on your hands.

Thirty-five trillion is a gargantuan number. To put it in perspective, that's 170x greater than the number of stars in the galaxy. So next time someone wants to describe the debt as “astronomically” large, correct them and tell them it’s economically large. Because only an unaccountable, spendthrift government like our own could make such unnatural numbers an economic reality. Nature is much more reasonable.

How Did This Happen?

This situation was created by Congress and perpetuated by Congress. They bear sole responsibility for the current crisis. For decades Congress has refused to use the Power of the Purse to prevent deficit spending, and have instead approved unbalanced budgets every single year since the Clinton administration.

With no willingness to temper deficit spending and no constitutional constraint to prevent it, year after year the U.S. Congress has steadily debased the U.S. Dollar and diluted the value of our savings. They have fueled the boom-bust cycles that squander resources and ruin lives, and have financed the creation of unwieldy entitlement programs and illegal wars that have only made Americans less safe. All of this has only been possible because of the deficit spending that Congress has approved.

What Does The Future Hold?

In the middle of last year the Congressional Budget Office released its Long-Term Budget Outlook which forecasted the growth of U.S. debt service payments.

They estimate that by 2053, interest on the debt will account for 6.7% of GDP. Since 4Q:2023, interest payments have been more than $1 trillion every single quarter and today accounts for roughly 2.4% of GDP. Furthermore, in the Summer of 2023 the credit rating of the U.S. debt was downgraded from AAA to AA+–only the second time in U.S. history where the quality of the U.S. debt has been downgraded. 

A credit downgrading like this indicates that creditors are uncertain that the U.S. will be able to pay the debt it already owes, let alone any future debt it might incur. As a result, creditors are demanding higher yields on U.S. treasuries to hedge against the possibility of a U.S. default on its debt. Higher rates, of course, only exacerbate the burden of servicing the debt. But since the U.S. government is currently fighting a cost-of-living crisis created by its very own policy of inflation, they have little choice but to keep the printing presses offline and suffer from higher rates.

Recent yields on U.S. 10-year treasuries have increased dramatically, indicating that demand for long-term treasuries has decreased. As with anything, a decrease in demand (all else equal) results in a decrease in prices. This decrease in the price of long-term treasuries means that the yield (or interest rate) on these bonds is higher; i.e. higher yields, higher interest payments, more financial instability.

Recession or War Means More Debt

The yield on these 10-year treasuries are roughly 4.27% as of July, the highest they've been since 2008. Given the current trajectory of the deficit, the possibility of recession in 2024, and the potential for another regional war in the Middle East with Iran, these rates may climb higher still.

If a recession is to occur in 2024, we can expect even greater levels of deficit spending, as has been the case in every economic crisis since the Great Depression. 

The prospect of the U.S. engaging in a large-scale war overseas also threatens to exacerbate the deficit, as was the case in the 2001 war with Afghanistan and the 2003 war with Iraq. 

Interest Payments Becoming the Biggest Expense

A spending projection by The Committee for a Responsible Federal Budget shows that federal interest payments are poised to become the largest item in the federal budget by the end of 2024—even surpassing military spending. For many years military spending has accounted for roughly a quarter of total spending outlays while mandatory spending on Medicare, Medicaid and Social Security have accounted for roughly 50% of the total budget.

The fact that entitlement spending has been growing faster and faster with the increase in the retirement rate of the Boomer generation, and yet has still been surpassed by interest payments, does not bode well for the solvency of the U.S.

Exactly how the Federal government plans to pay the interest on the debt in light of growing entitlement obligations ($80 trillion in unfunded liabilities) is not exactly clear. Especially since the Social Security Trust has no money from which they can borrow (as they have done in the past).

Members of the public are not buying their new debt at rates anywhere near what the Federal government expects, and neither are foreigners. If anything, foreign nationals are offloading their U.S. treasury debt, and many nations are increasing their stockpiles of gold and other precious metals in anticipation of a Dollar collapse or a Sovereign Debt Crisis. There’s no telling when or whether this will occur. But without fiscal constraints or proper incentives to prohibit this kind of reckless spending, it’s becoming increasingly likely.

Conclusion

The only thing the Federal government seems willing to do is to continue with business as usual. Congress has made no attempt to reign in deficit spending (with the exceptions of Senator Paul and Senator Lee) and thus finds itself in a debt spiral of its own making.

A debt spiral is when an entity takes on debt and accumulates more debt to pay off the preceding debt. In other words, it borrows to pay off previous borrowing, and then borrows more to pay off that borrowing. Soon enough the entity is drowning in debt and unable to pay any of its bills. The only option, then, is to declare bankruptcy. This is the path the U.S. government currently finds itself on.

The only saving grace for the Federal government in this regard, however, is that the Federal Reserve can expand the money supply and reduce interest rates, thus lowering the interest on the debt. But the Federal Reserve and Congress are currently faced with a mounting pressure to stop inflating the money supply as high prices continue to wreak havoc on Americans.

There's no telling whether Congress will pull an about-face, but all signs point to "No" for the following reasons:

1) There is no Constitutional provision to either limit deficit spending or to limit the size of the debt. And if there were, Constitutional constraints are frequently circumvented anyway.

2) Public Choice theory (the logic of political decision-making) tells us that Congress will continue to increase spending and the Federal debt too. Like it or not, voters don't want balanced budgets. Everyone wants to receive more in benefits than they contribute and everyone wants this at the same time, so government spending will continue to exceed its revenue.

3) Where are the Statesmen who will guide the public? For Aristotle, Edmund Burke and Russell Kirk, a Statesman's duty is to act in the interest of the public, not to cater to their whims. The Statesman must have in mind the Good of the people and act in pursuance of that Good despite the objections of those he represents. He must then work to persuade the public that his policies are, in fact, of benefit to them. And he must persuade them of this by being both an intellectual and moral leader.

How many such men hold seats in today's Congress?