Revisiting America’s Debt

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I was the ranking Republican on the Senate Budget Committee from 2011 to 2015, when the last serious budget debate occurred. Congressman Paul Ryan was chair of the House Budget Committee. He had carefully crafted an historic plan for America that would have put the nation on a sound fiscal path, and his program included policies that would have reformed and saved our runaway entitlement programs—Medicare, Medicaid, and Social Security—that were and remain the primary systemic drivers of the debt. A secure financial future is not achievable without such reforms.

The effort was aided by strong support from many sources, including the report of the bipartisan National Commission on Fiscal Responsibility and Reform, commonly called the Simpson-Bowles Commission. That report urged major bipartisan reforms, without which a grim financial future was predicted. There was truly a window of opportunity. But to get bipartisan support, the support of President Barrack Obama was essential. His refusal to join doomed the effort.

Anderson’s recent piece brought that debate back to mind. His study, based on official federal tallies, illustrates that things have not improved. Instead, the risk has steadily increased. Here are some of the facts Anderson highlights:

  • We “racked up more debt in the 12 months of 2020 than we did during the four years of the Second World War”—even “after adjusting for inflation.”
  • We “added as much debt held by the public in 2020 alone as we did from the end of World War II to the end of 2008” (a span of 62 years), even “after adjusting for inflation.”
  • “In 2021, the federal government collected more than three-and-a-half times as much money, in real dollars per capita—that is, above and beyond inflation and population growth—as it did at the start of the postwar period”—but “it spent nearly seven times as much.”
  • “It is…the Great Society that is bankrupting us”—from the “first year that Medicare spending visibly hit the books” (1967) “through 2020, Medicare and Medicaid cost a combined $17.8 trillion, while our combined federal deficits over that same span were $17.9 trillion”

During that previous debate there was strong support for the idea that since the nation can carry only so much debt before a default or crisis results, the debt-to-GDP ratio is a key evaluation tool. Historically, a ratio that rises close to 90 percent is evidence of an economy in the danger zone. Harvard Professors Carmen Reinhart and Kenneth Rogoff, in their important book This Time Is Different: Eight Centuries of Financial Folly, note that over half of governmental defaults have occurred when the ratio was below 60 percent. As Anderson notes, in 2020 our debt-to-GDP ratio hit 100 percent.

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Clearly, it is time for our leaders to take notice. They must explain the danger and take action. Amazingly, in 2020 we spent $6.6 trillion after collecting $3.4 trillion in tax revenues—so, more than $19 went out for every $10 that came in. Over the last five years, the average has been $3.5 trillion collected, $5.2 trillion spent.

Such numbers are the very definition of unsustainable. A nation must have a reserve or else it has no ammunition during a crisis. Such annual and massive deficits can’t be accepted.

To be clear, all the trillions in “emergency” spending—every penny—has been borrowed. These deficits are funded by increasing the public debt through issuing Treasury bonds to lenders all over the globe, and by the Federal Reserve buying government debt instruments—a worrisome event in itself. When the Fed buys government bonds, it effectively prints money. This devalues the currency in circulation, inflates the cost of every product, and it devalues personal savings. After a single year of 8 percent inflation, a saver’s $10,000 is reduced to $9,259 in real value.

There is no doubt: Large debt is dangerous to the nation and to its responsible citizens. Anderson notes that in 2019, before manic federal spending during Covid sent deficits soaring to new heights, the government collected about $10,500 per capita in taxes. What did it spend it on? He writes, “The first $1,000 essentially just went into the trash—it was used to pay interest on the debt, not to buy anything.”

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