The US national debt is growing at a rate never seen in American history. With a current debt of over $ 28 trillion – an increase of almost $ 5 trillion in 14 short months, Washington is currently debating an infrastructure bill with a price close to $ 2 trillion. Even without these additional spending, the national debt will reach $ 89 trillion by 2029 according to USDebtClock.org. This would bring the country’s debt-to-GDP ratio to 277%, surpassing Japan’s current debt-to-GDP ratio of 272%. The good news is that the US economy grew 6.4% in the first quarter of the year. The bad news is that once we get back to normal, future economic growth will not be as robust, mainly due to rising debt. Yes, America is losing, or perhaps has already lost, control over its public spending. But it has not always been so.
If you look at the data since 1901, federal government revenues and expenditures were mostly consistent until the early 1970s. Of course, we sometimes had a deficit, including during World War I, the United States. Great Depression and World War II. Even then, Washington had some control over its spending as the country was still under the gold standard. However, when Nixon abandoned the gold standard in 1971, the chains were removed and Congress was free to spend, or rather overspend.
The following graph highlights the country’s surplus / deficit from June 30, 1901 to September 30, 2020. Vertical shaded areas indicate recessions / depressions.
More recently, Washington’s propensity to overspend has been unprecedented. When the financial crisis hit in late 2007, Congress passed a series of spending bills, known as quantitative easing, to help the country emerge from the Great Recession. At the time, expenses were about 67% more than receipts. The Covid-19 pandemic ushered in a new wave of spending with spending exceeding revenue by nearly 92%. The following graphic contains the data.
When you look at the national debt over an extended period, you can see how it has grown in recent years (see the following graph).
Simply put, we are leveraging our future to stimulate today’s economy. According to a 2011 research paper from the Bank for International Settlements – a bank and research center owned by 63 central banks around the world, when the public debt-to-GDP ratio exceeds 85%, future economic growth is reduced. With a current debt-to-GDP ratio of 127%, which is expected to rise to 277% by 2029, future economic growth will not be as robust as it has been in the past. The exception to this will be during an economic rebound after a recession, which is typical.
Now we are facing another round of congressional spending with the new infrastructure bill. Do we need to manage our infrastructure? Yes. Is this the right time to add another $ 2 trillion to spending? Absolutely not. You see, the economy is already developing well. No additional expense is required at this time. Why is Washington pushing so hard to pass this bill now? Because Democrats have a majority in Washington, at least until the November 2022 election. Therefore, the timing for this new bill is not based on the needs of the nation, but rather on the political makeup. in Washington. As Rahm Emanuel said during the Great Recession, “You never let a serious crisis go to waste. And what I mean by that is an opportunity to do things that you think you couldn’t do before.
The battle between progressives and conservatives is intensifying and the progressives are taking court. The result of this blatant overspending is a national debt that is spiraling out of control. More specifically, our elected officials spend without worrying about our future. Until “we the people” decide to hold them accountable, we should expect more of the same.