Column #421 September 22, 2023
The National Debt Clock keeps rolling along. Our Federal government has now blown through $33 trillion of borrowed money and there’s no end in sight of deficit spending. Our legislative leaders just can’t get enough of it. Once again, voting in a Republican majority in the House of Representatives to put a lid on runaway spending has turned into a big joke.1
Kevin McCarthy, the new Speaker of the House is a limp dishrag. Representative Matt Gaetz has had him pegged from the get-go. McCarthy is hardly better than Nancy which makes him a lot like Paul Ryan. This means the Republican “leaders” are continuing in their tradition of being slow Democrats. They talk conservatively but in the end they always eventually come around to compromise on the liberal side. The Republican leadership has been doing that for decades which is why our country is in such a mess. They don’t provide even a semblance of a counterbalance to hold the country on a narrow fiscal and/or social path.
When WWII ended in 1945, the Federal Debt was $260 billion. It grew 0.65% a year to $286 billion by 1960. By 1981 the debt was $1 trillion for a growth rate of 6% per year for 21 years. In 2008 the debt had reached $13.6 trillion which meant debt grew an astounding 10.5% annually for 27 years. Now the debt is 33 trillion which means in the past 13 years the pile of debt grew 6.4% annually.2
When our young citizens discuss finances these days, they don’t know that at one time debt was not embraced. They certainly don’t realize that most, if not all, of the Founding Fathers are on record for discouraging borrowing and unnecessary spending.
James Madison said “I go on the principle that a Public Debt is a Public curse and in a Rep. Govt. a greater than in any other.”
Brutus, a pen name for an anti-Constitutionalist and anti-federalist, wrote: “I can scarcely contemplate a greater calamity that could befall this country, than to be loaded with a debt exceeding their ability ever to discharge.”
Thomas Jefferson said “public debt as the greatest of the dangers to be feared,” and he warned that in order to preserve the people’s independence, “we must not let our rulers load us with perpetual debt.”
Jefferson also talked about the urgency of paying off debts, saying it would help preserve peace. “It is incumbent on every generation to pay its own debts as it goes. A principle which, if acted on, would save one half the wars of the world.”
Benjamin Franklin warned that running into debt gives “to another Power over your Liberty.” Madison agreed saying that “debt among a trio of tools that people with power use to establish tyranny. Armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few.”
In his Farewell Address, George Washington urged the country to use debt sparingly. “As a very important source of strength and security, cherish public credit. One method of preserving it is to use it as sparingly as possible, avoiding occasions of expense by cultivating peace, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it.”
For its first 140 years the Federal government was mindful of the advice regarding debt. But fiscal cracks appeared under the presidency of Woodrow Wilson. They were opened wider by Theodore Roosevelt, made worse by Lyndon Johnson, and blasted even wider by Richard Nixon. From then on it has been spend, spend, spend.
Now our Federal government has reached an interesting point in the cycle of debt accumulation. The interest on the debt has grown to the point where it is forcing cuts in important government spending programs unless the government borrows money to pay the interest! How’s this go now? We borrow money from China in order to pay interest to China?
Currently, Federal revenue is $4.3 trillion annually and the interest expense is $700 billion and rising rapidly as interest rates increase and maturing low interest debts rollover. That leaves $3.6 trillion to run the government. But get this. That is less than the combined expenditures for Medicare/Medicaid $1.6 trillion, Social Security $1.3 trillion, and Defense/War $0.8 trillion. Interest expense is a serious problem that is being addressed with more spending and borrowing!3
This is why it’s a disaster that McCarthy’s first fiscal step, after taking over the speakership, was to increase the debt ceiling so the Biden administration could continue to spend like a drunken sailor on pie-in-the-sky programs. Now McCarthy is facing his second challenge for funding the next year. Will he make sure all the unnecessary pork barrel programs are defunded? You can bet that most will not be touched. Will he even roll back spending to last year’s levels? I doubt it. Our country is technically bankrupt yet the only solution coming from Congress always seems to be to borrow and spend more!
So, what is driving the insanity? Back in the late 1940s a belief surfaced that unless the Federal government runs a deficit the economy will fall into a steep depression. So the decision was made not to pay off the debt accumulated during WWII. That meant that citizens and corporations did not have to use their savings, which they accumulated during the war because of rationing, to pay down government debts. Instead they were free to spend and invest their savings. When their savings ran out, the private sector started borrowing to augment their incomes in order to continue their increased consumption rate.
By the late 1960s the nation had hit a wall. Debts were difficult to service. So price inflation was the answer. The resulting stagflation devalued debts while incomes were increased. Presto, after 14 years (1966 to 1980) of economic stagnation citizens were in a position to once again borrow money to augment their incomes for more consumption. This created a long-term credit boom to where our nation is now basically bankrupt. Today I think the powers that be are trying to wash, rinse, and repeat.
Unfortunately, I don’t think the Fed or our government is powerful enough to influence the entire world to go along with a goal of dollar debasement and more debt. That’s because citizens, businesses, states, and the Federal government are all carrying too much debt. The ratio of just the Federal Debt to Gross Domestic Product (GNP) illustrates the problem. According to the Debt Clock, the ratio was 52.40% in 1960, 34.67% in 1980, 56.23% in 2000, and now it’s a whopping 122.41%. That federal debt load to GNP is a huge anchor and is duplicated in terms of debt to incomes in the private sector as well.
Our nation has reached a point where if total debt can’t increase—the credit structure will implode. This is why you’re hearing a crescendo of predictions for a depression on the horizon. What makes it equally tricky is that if more spending is voted in by the Republicans that will be considered a negative for the country’s finances. If spending is reined in, that will also be considered a negative for our country’s finances.
Yep, because of decades of excessive borrowing the country is between a rock and a hard place.
To your health.
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:
2. US National Debt by Year by Kimberly Amadeo
3. Endgame: US Federal Debt Interest Payments About To Hit $1 Trillion by Tyler Durde from Zerohedge