$4 Trillion

Column #406      June 9, 2023

Since the country’s inception there was only one time when it was debt free. That was for about 12 months commencing in January 1835 under President Andrew Jackson. Generally, our government’s debt load has been modest compared to the nation’s Gross Domestic Product (GDP)—except during times of war when debts surged higher. When wars would end, the government would spend years paying down the debts until the next war. For that reason, up until 1917, generally the debt to GDP ratio ranged between 10% (or lower in some cases) and 30% of GDP. Interestingly, the first debt ceiling bill was passed in 1917—shortly after the creation of the Federal Reserve Bank (Fed) in 1914.¹

Starting with the Great Depression era—1930 to 1940—policies changed with deficit spending being used as a tool to counter economic depressions. That’s why when the US entered WWII the debt to GNP ratio had already climbed to 40%. During the war it soared to 112.7%. Yet, in spite of the Korean and Vietnam wars, by the end of 1974 the debt to GNP percentage had slowly declined to 30.85%—a level it stayed at until the end of 1981. Then it steadily increased to 65.3% by mid-year 1995. For the next 13 years the ratio averaged about 60%. But, following the 2008 recession, deficit spending went berserk and the percentage of Federal debt to GDP eventually peaked at 134.8% during the second quarter of 2020.²

Other than during the Clinton and the Biden presidencies, for most of the years since 1981 the Federal government’s debt has grown faster than the nation’s gross domestic product. (In the past two years the debt-to-GDP ratio actually declined as deficits continued.) Generally speaking, we can say that in every year since 2001 the U.S. has added $25 trillion in debt, spending nearly $1 trillion more than it receives in taxes and other revenue—in large part due to financing wars, tax cuts, recessions, pandemic shutdowns, and growing the government.

According to the Nation’s Debt Clock, which is constantly updating, the nation’s finances are not very pretty. That’s because more debt is not stronger debt, more debt is weaker debt. Compounding that problem is the fact that the era of declining interest rates (1982 to 2021) has ended and rates may be on the rise for the next 20 years. If so, higher interest rates mean debts cost more to carry on the books and that weakens all debtors. Consequently, borrowers (in this case the Federal government) are riskier bets with every little increase in interest rates.³

Here are the latest numbers from the Debt Clock. “T” stands for trillion.

●    Current Annual Government Revenue is $4.67T
●    Total planned expenditures for this year is $6.24T or 33.6% more than revenue
●    Debt increase this year is $1.57T
●    Current Annual GDP is $26.42T
●    Current Total Debt is $31.83T which is 120.5% of GDP
●    Interest on the Federal debt is $0.58T for an average interest rate of 1.81%

Obviously, the government is borrowing and spending money like a drunken sailor and plans to do that nonstop until 2025. Doing so is inflationary during a time when the Fed is trying to rein in the money supply in order to lower the price inflation rate to 2%. Obviously, if protecting the integrity of the dollar means anything, then deficit spending at a time like this is irresponsible.

The Federal debt limit was just recently increased by $4T to fund our nation beyond the 2024 election. That’s a 12.6% increase in total debt in about 24 months for a compounding rate of 6.15% which is faster than last month’s price inflation rate of 4.9%. This is another example of government leaders from both parties being irresponsible.

To make matters worse, by going deeper into debt at a time like this will force the government’s interest costs to increase. There are several reasons why. First of all is that a lot of the old debt was taken on from 2009 through 2016 and 2000 to 2021 when very short-term interest rates were essentially zero. In those same years, ten-year bonds averaged interest costs of about 2% and long-term bonds averaged interest costs of about 3%.

Today, the average interest being paid on the government’s $31.83T debt is only 1.81%. As debts come due and are renewed during the next 24 months, total interest being paid on all of the government’s debt could easily double! That’s because short-term bonds are paying over 5% and long-term bonds pay around 4%. Just imagine what happens when a T-Bill matures that cost zero percent interest and the new obligation one taken on costs over 5% interest. That’s a huge jump and that’s happening every week now, week after week.

It doesn’t take a lot of imagination to understand the strain on a $5T budget when the interest expense alone doubles to $1.16T. This will force more borrowing which at some point our government’s bond ratings will most likely go down. Plus, if the price inflation rate does not subside, that too will force interest rates higher. Then if the economy slips into a depression, interest rates will increase even more as risk levels skyrocket.

For all these reasons the continuous borrowing to fund spending is not sustainable. It’s the same old same old of the past many decades. It’s simply more debt piled on more debt. It also shows every thinking American that the representatives in Washington are, for the most part, shills. As Ron Paul says tongue-in-cheek, “The Fiscal Responsibility Act is to fiscal responsibility as the Affordable Care Act is to affordable health care and as the Patriot Act is to true Patriotism. Perhaps a future Congress will introduce legislation that actually begins to cut back on the size and scope of government called the Fiscal Irresponsibility Act!”⁴

The disclosed Federal debt load of $31.83T is not all she wrote. There are also the debts that are labeled “unfunded liabilities.” They consist of pensions, Social Security, and Medicare. They currently total $188.1T.⁵

There’s no question that if the Federal government was a business or an individual—it would be bankrupt right now. But the way things work in government, it will persist in doing what it always has until something snaps. That something will either be the credit system itself which implodes or the dollar will simply go poof. It’s an age old story that has never changed with the passage of time. Once again, our representatives had a chance to start down a new path. But they dodged that by continuing the same policies that got us into the current predicament. Therefore, by doing what they have always done, the results will be what they have always been.

To your health.

Ted Slanker

Ted Slanker has been reporting on the fundamentals of nutritional research in publications, television and radio appearances, and at conferences since 1999. He condenses complex studies into the basics required for health and well-being. His eBook, The Real Diet of Man, is available online.

For additional reading:

1. The Long Story of U.S. Debt, From 1790 to 2011, in One Little Chart by Matt Phillips from The Atlantic

2. Federal Debt: Total Public Debt as Percent of Gross Domestic Product from Federal Reserve Bank of St. Louis

3. National Debt Clock

4. Republicans Fiscally Irresponsible Act by Ron Paul from Ron Paul Institute

5. What Are Unfunded Liabilities? by Kent Thune from The Balance Money