In every political campaign (at least the good ones) there is a “book,” outlining the issues the candidate will face, and the arguments and positions the candidate takes. It is so everyone on the campaign is literally on “the same page” when it comes to that issue. I’m not running for office, but over the next several weeks, I will be presenting a series of issues for my “briefing book.”
What We Can Afford – The Briefing Book
Here is the number; on February 11, 2019, the United States reached a new milestone: the debt of the United States exceeded $22 Trillion. The anticipated income for the United States government for 2019 is $3.422 Trillion. The anticipated spending is $4.407 Trillion; so in 2019 the United States will add to the debt by almost $1 Trillion (this is the annual deficit.)
What is the debt of the United States? It is the total amount that the government has spent over the years more than it has received in income. $3.9 Trillion of that debt is in held by foreign countries in the form of US bonds or Treasury notes, a little over $1 Trillion of that is specifically held by the government of China (28%.) That leaves about $18 Trillion held either by the American people, or that the government has “borrowed” from itself.
As the United States owes money to other countries, so other countries owe the United States. The US has $29.27 Trillion owed by other nations. So on the balance sheet, the US is owed more than it owes.
To simplify all of this – think in terms of credit card debt. The United States is spending using long-term credit cards, financed by all sorts of people, and nations, and from other US Government line items (kind of like borrowing from your own retirement account.) Like all credit card spending, the good news is you get to have what you want when you want it. The bad news is that there is a cost; the interest paid to carry the debt. In 2019, the United States government is expected to spend $389 Billion on interest on the debt, or about ten percent of the US budget. In 2016 the debt service was the third line item on the budget, behind pensions, healthcare (Medicare, Medicaid, etc) and Defense.
Last year, President Trump and the Congress cut taxes (income) by $1.5 Trillion. Their hope was that the cut would spur an economic boom, creating more income taxes to ultimately make up for the amount lost in the cut. Currently, that boom hasn’t occurred, with economic growth staying steady between 2.5% and 3.0%. So the net effect so far of the tax cut, is an estimated $1.3 Trillion loss in income to the government.
The President has increased defense spending in his budget requests, between $40 to $60 Billion over the past three budgets. Congress has continued to operate on a budget over $4 Trillion, so there has been little action to reduce Congressional spending, despite the reduction in income due to the tax cut.
So here we are: little interest in either Party for attempts to “balance” the budget, and increasing pressures on both Parties to spend. Republicans want more for Defense and Border Security, Democrats want more for Heathcare and Education, and both want to address “infrastructure.” Going into the Presidential election of 2020, everyone wants to spend and no one wants to cut; so it’s likely that both the deficit (yearly) and the debt (total) will continue to grow.
Like a growing personal credit card debt, it’s easier to ignore the debt rather than deal with it. There are too many urgent problems for the American government and people, then to worry about a financial issue that looks like a lot of book keeping.
But there are long term impacts of the Federal Debt, both on what the government can do, who controls our finances, and what happens to our economy. The first impact is that paying for the cost of the debt (interest owed) will continue to take up bigger and bigger “pie slice” of our total government spending. $400 Billion or more on debt service is $400 Billion NOT spent on other budget items; items from border walls to student debt relief. And the greater the debt grows, the greater that service budget item will grow: estimates show that the debt will exceed $30 Trillion as soon as 2028, with estimated annual interest approaching $600 Billion.
And, since a large portion of the debt is the US Government “borrowing” from itself, it essentially is increasing the amount of money in circulation. This increase causes the “value of money,” the actual purchasing power of that money, to decrease. That’s called inflation, and means that while there is more money around, it doesn’t purchase a whole lot more. So both the Debt and the Deficit create inflationary pressure on the economy, and can have devastating impacts on the finances of regular citizens: savings accounts, retirement accounts, and fixed incomes are directly hurt by inflation. The quotes: “why isn’t a dollar a dollar anymore” or “go find a penny gumball machine;” both highlight the impact of inflation.
As the debt grows, more and more of the “spending decisions” of the government will be made by the financial institutions that own, manage, or control the money. Government priorities will be set not by elected officials, but by the financial markets. This isn’t some “deep dark conspiracy” of the alt-right or radical left, this is the natural outgrowth of the growing impact of the debt. Everybody loves bankers when they are loaning money out, but no one likes them on the first of the month when the payments are due.
Like the environment, social security and Medicare; the debt is a long-term problem. And like the environment and those others, it doesn’t yield to quick and easy answers; it will require a re-prioritizing of what Americans want to get done. But it will continue to loom over every other American decision in the next decades; it will require a solution; the longer we wait, the bigger and more invasive that solution will need to be.
