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%
Today, US Debt is approximately $27 Trillion or 137% 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 ? ) – $6 Trillion increase so far – debt went from 20 Trillion to almost $27 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 most economists.
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 about $3 trillion of his total – so far. 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 own Council of Economic Advisers published their study Mitigating the Impact of Pandemic Influenza through Vaccine Innovation. 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….”
Turning around the mismanagement of our country and the trajectory of U.S. Debt makes the proverbial turning around a battle ship look easy. Trump’s talk of $1 Trillion in infrastructure spending, coupled growing payments on earned benefits while substantially cutting taxes can only be offset by the “Hail Mary pass” of a sustained, and substantial rapidly growing economy, net of debt. And an economy taking in significantly higher revenue faster than spending. Time will tell!
Debt Tomorrow – Future, Unfunded Liabilities
Elected Politicians have committed US to pay Future, Unfunded Expenses and Obligations of approximately $80 Trillion. Yes, that is $80,000,000,000,000 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, and they have not have not set aside any money to pay them.
At best, this is irresponsible. At worst, gross negligence!
Future, Unfunded Liabilities (Estimate)
|Publicly Held Debt
|Social Security Expenditures
|Medicare Future Expenditures
|Total Est Future, Unfunded Liabilities