On March 1, the U.S. national debt eclipsed $28 trillion with no end to the borrowing and spending in sight.
It was just last fall that the debt surged above $27 trillion for the first time. In less than five months, Uncle Sam added another $1 trillion to its debt load. And there’s barely been a peep from the mainstream media.
Before you start blaming Joe Biden – and his time will come – understand that this is now Donald Trump’s legacy.
When Trump took office in January 2017, the national debt stood at $19.95 trillion. It topped $22 trillion in February 2019. That represented a $2.06 trillion increase in the debt in just over two years. By November 2019, the debt had eclipsed $23 trillion. That was before the coronavirus pandemic put borrowing and spending on hyperdrive. Less than 18 months later, the U.S. government has blown the debt up by another $5 trillion.
In just one four-year term, the Trump administration swelled the national debt by nearly $8 trillion. It took the Obama administration eight years to do the same.
Granted, it’s not fair to pin government spending solely on the back of a president. Congress ultimately passes the spending bills. But the president plays a significant role in setting budget priorities and he always has veto power. Trump never even played lip-service to reining in spending. And you should remember that on the campaign trail, Trump promised to deal with the skyrocketing national debt. In fact, he said he could take care of it “fairly quickly.”
This isn’t to let Biden off the hook. He will undoubtedly continue the spending binge and likely increase it. Congress already appears set to pass another $1.9 trillion stimulus bill and there is talk of an infrastructure bill after that.
Even without stimulus, the spending appears to be accelerating. The U.S. government ran a $735.73 billion budget deficit in just the first four months of fiscal 2021. To put that into perspective, that is slightly higher than the 2014 deficit and would rank in the top-10 highest deficits ever run. This doesn’t reflect the likelihood of news stimulus and government spending coming down the pike with Biden at the helm.
To add a little perspective to the massive U.S. debt, if the Treasury Department billed every U.S. citizen for their share, your bill would be $84,827. And every taxpayer would have to fork out $223,000 to settle the national debt.
Despite the lack of concern in the mainstream, debt has consequences. Studies have shown that a debt to GDP ratio of over 90 percent retards economic growth by about 30 percent. The debt-to-GDP ratio currently stands at 129.72 percent, according to the National Debt Clock. This throws cold water on the conventional “spend now, worry about the debt later” mantra, along with the frequent claim that “we can grow ourselves out of the debt” now popular on both sides of the aisle in DC.
According to a CBO report last fall, on the current trajectory, the size of the national debt will be nearly double the size of the U.S. economy by 2050.
There is another player in this saga that doesn’t get enough attention – the Federal Reserve. It is the engine that powers the biggest government in the history of the world.
The Federal Reserve makes all of this borrowing and spending possible by backstopping the bond market and monetizing the debt. The central bank buys U.S. Treasuries on the open market with money created out of thin air (debt monetization). This creates artificial demand for bonds and keeps interest rates low. All of this new money gets injected into the economy, driving inflation higher. The Fed expanded the money supply by record amounts in 2020.
The Federal Reserve now holds $4.7 trillion in U.S. government bonds, a record 17.5 percent of all U.S. debt. The Fed’s share of the U.S. debt load exploded from 9.3 percent in Q1 2020 to its current level.
Currently, the average American doesn’t really feel the impact of federal spending. Taxes remain low (relatively speaking). The Treasury simply borrows the money and the central bank monetizes the debt. But borrowed money has to be paid back. You will pay the bill – whether through higher taxes down the road or the inflation tax inherent in the Fed’s debt-monetization scheme. And in reality – both.
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