Why is the US in Debt Today and will be Tomorrow?

Debt is not inherently bad or dangerous, given a good reason for incurring the debt, the right level, and the ability to service and repay the lender. There are times when it is appropriate and necessary such as borrowing for income producing purposes greater than the cost of the debt or borrowing becomes necessary due to a catastrophic or unforeseen event.

Debt becomes bad and dangerous when borrowing is due to Elected Politicians’ mismanagement of the country, and their mismanagement continues.  And, when they do not have a reasonable limit on borrowing and can simply vote to increase the debt limit.

Since the Revolutionary War, the U.S. has incurred various levels of debt.  For the most part, the levels have been manageable, relative to the US’s ability to service the interest on the debt and maintain it at economically prudent levels, with the exception of a few years after World War II and the past few years. A globally accepted formula to measure an “economically prudent level” is Debt to the Gross Domestic Product (the value of all goods and services of the country) or Debt to GDP. Historically, the prudent level has been thought to be approximately less than 60%

Debt Today

 Today, US Debt is approximately $35 Trillion or 122% of GDP, one of the highest in the world. A level which is deep in the danger zone.

Many may say, the real Debt problem in the U.S. started in the early 2000’s.  Coming into the 2000’s US Debt was $5 Trillion. It took 225 years to reach that level. Following is a brief summary of what happened to US Debt during the last two Presidential Administrations (not necessarily by each Presidential Administration since each inherited issues from the prior administration):

G. W. Bush (2001 to 2009) – $6 Trillion increase – debt doubled from $5 Trillion to $11 Trillion. Upon taking office, there were annual surpluses and Debt to GDP was 54%. With the surpluses, many thought the Debt would eventually be eliminated. A recession combined with the “Bush tax cuts” reduced revenues.  9/11 occurred a few months after the tax cuts and the US entered into two wars. Unlike previous wars, taxes were not increased to pay for these wars.  We borrowed money from Trust Accounts, Retirement Funds, Foreigners and others to engage in these wars. We were mislead into entering one of these wars.  Theses are now the longest wars in US history with no end in sight, and the second most costly after World War II.

Obama (2009 to 2017) – $10 Trillion increase – debt went from $12 Trillion to $20 Trillion.  He inherited a portion of the Bush tax cuts, the 2007/08 fiscal crisis (of a near depression level) and the two ongoing wars and multiple military actions. To that, Obama added the Affordable Care Act.

Trump (2017 to  2021) – $8 Trillion increase – debt went from 20 Trillion to $28 Trillion. Trump inherited declining annual deficits – moving downwards towards $400 billion. After stating while campaigning that he could eliminate our national in 8 years he quickly turned that around and started incurring annual deficits approaching $1 trillion, pre-pandemic. He pushed through a massive income tax (revenue) reductions, primarily benefitting corporations and the wealthy, and he increased spending. He claimed the tax reductions would be reinvested into industry, increase GDP thus increase taxes, and it would offset the revenue loss. It hasn’t worked, as expected by many economists. That tax cut added approximately $2 Trillion to the national debt.

Trump not being prepared for Covid-19, then playing it down, and not responding quickly and effectively by using the power of his office accounts for an estimated $4 trillion of his total. One of Trump’s initial claims was that no one could have predicted a pandemic. It is well documented that a pandemic was predicted but no one knew when, and in September 2019. His administration’s Crimson Contagion risk management for a pandemic and his  Council of Economic Advisers published their study Mitigating the Impact of Pandemic Influenza through Vaccine Innovation predicted the estimated casualties, fatalities and costs of a pandemic. The Executive Summary (page 1) states  “…the economic damage would range from $413 billion to $3.79 trillion and fatalities in the most serious scenarios would exceed half a million in the U.S. Millions would be sick with approximately between 670,000 to 4.3 million requiring hospitalization….”  The Trump administration, as part of a public-private partnership “Operation Warp Speed” (a type of partnership initially launched during Obama’s administration) gave a few pharmaceutical  companies billions of dollars to quickly develop a vaccine. It is interesting to note that the first company to get approval for the vaccine did not take any of this Covid vaccine research money.  Others who took the money followed. By December 2020 more than 10 billion does of the vaccine were ordered by countries.

Biden (2021 to 2024 so far) – $7 trillion increase, so far, as debt went from $28 trillion to $35 trillion. As Biden entered the vaccine rollout was happening and the economy was opening up. Despite this, his administration passed the $2 trillion “American Rescue Plan.”  Many felt this $2 trillion was Democratic’s to their base for Trumps $2 trillion in tax cuts and unnecessary – adding fuel to the fire for all the Covid money injected into the economy and fueling the inflation that followed. The Biden administration has been running $1 trillion plus budget deficits, with no actionable plan to reduce them.

Republican presidents and administration’s do not get elected for increasing taxes. Democratic presidents and administration’s do not get elected for cutting spending.

Remember, politicians getting elected and remaining elected are all about jobs–THEIR JOBS!  And, based on the financial position and condition of the U.S. Government, not the responsible fiscal running of our country and your long-term financial security.

Debt Tomorrow – Future, Unfunded Liabilities

Elected Politicians have committed US to pay Future, Unfunded Expenses and Obligations of approximately $125 Trillion.  Yes, that is  $125,000,000,000,000 that will be needed to be paid in the future.

A Future Obligations is a future debt or performance obligation that Elected Politicians committed US to pay to someone at some future date.

An Unfunded Obligation is used to describe any obligation that does not have funding set aside for it.

Simply Translated – Elected Politicians have obligated US to pay for something, such as future pensions and medical benefits for Elected Politicians, Federal Employees, and the military, social security, medicare and they have not have not set aside any money to pay them.

At best, this is irresponsible. At worst, gross negligence!