As the Web site USDebtClock.org reports, we just hit over $30 trillion in national debt, about $90,2210 per citizen or $240,000 per taxpayer — thanks in large part due to COVID-related binge spending.
Our debt-to-GDP ratio is now over 128 percent, far higher than the 52 percent in 1960 (just prior to LBJ’s massive “Great Society” welfare binge spending that decimated African-American families), 35 percent in 1980 and 59 percent in 2000. If we layer on even more national debt — just like an individual buying too much on a credit card — we would get an American bond downgrade.
Though the problem of the debt might sound esoteric and opaque, it’s really quite simple. An analogy: a person’s credit reports pulled from agencies like Equifax, TransUnion and Experian America affect the pricing of his or her mortgage or car loan. On a national level, America gets credit reports from three major bond rating agencies: S&P Global, Moody’s Investors Service (my former employer) and Fitch. If we don’t stop our binge spending in its tracks, America won’t be prepared for the next real emergency. We won’t have much extra room before we get downgraded and everything gets more expensive because our interest rate for U.S. sovereign borrowing spikes. It’s the exact opposite of what we need during this unprecedented inflation craze.
News Tuesday that gross U.S. government debt had surpassed $30 trillion for the first time caused a flutter of headlines but merely yawns from the political class. That might have something to do with the arsonist not wanting to hang out at the scene of his fire. But it’s worth a moment to explain how to think about that gargantuan debt number.
The first point is that the debt really isn’t $30 trillion. About $6 trillion of that is debt the government owes to itself in Social Security and other IOUs. Social Security is a promise made by politicians to workers. It isn’t a contractual debt like a Treasury bill that must be repaid or risk default. Future politicians can refuse to pay workers what they owe, and eventually they will.
The debt held by the public is some $24 trillion, which is bad enough. That’s more than 100% of GDP, a level the U.S. has previously reached only during wartime. Much of this debt is held by Japanese or Chinese, who won’t take kindly to not being repaid. But they’ll keep lending that money as long as they assume they will be repaid.
The real issue is interest on all that debt, and what it means for the federal fisc. The debt costs very little when interest rates are near-zero. But when they rise, as they soon will, the burden of interest costs on the debt rises too. By one measure every percentage point increase in rates adds $100 billion a year or more to debt costs. That must be financed either with higher taxes or more debt.
How do you cure a shopaholic? First, cut up his or her credit cards. In this case, thanks to people like Sen. Joe Manchin (D-W.Va.), that happened at least temporarily in December, when he blocked the Build Back Better bill.
Another step: keep the pressure up on your lawmakers to stop new spending until we pay down more debt and reduce our interest payments. Future generations will thank you.