Total U.S. government debt has risen to nearly $30 trillion
The total US public debt has soared to nearly $30 trillion. Divided among the roughly 130 million households nationwide, that’s about $229,000 per household. And the bill is about to rise, as runaway inflation drives interest rates higher.
Few media have noticed that the national debt has reached the $30 trillion mark. There has been little to no reaction from people in DC’s political and political establishment, busy as they fight for just about everything. Budget hawks are nowhere to be found.
Excluding intergovernmental debt that one part of the government owes another part, such as what the federal government owes to the social security fund, the debt held by the public is approximately $24 trillion. This is more than the GDP, a level which had only been reached at the end of the Second World War.
Much of the national debt owed to foreign institutions is held by the Japanese and Chinese, who desperately want to be paid. It should be remembered that a growing debt burden can undermine confidence in the US dollar as the world’s reserve currency, making it more difficult to finance economic activity in international markets.
But why worry about debt when huge sums of money can be created out of thin air to pay the interest on all that debt, and nominal interest rates are close to zero? It’s a free lunch!
The federal government spends about $300 billion a year on interest payments on the national debt. This equates to nearly 9% of annual federal revenue, and more than the federal government spends on science, space, technology, transportation and education combined.
The debt service cost of past spending reduces the money available for other spending programs. Every 1% increase in interest rates would increase debt servicing costs by about $225 billion at current debt levels. It’s not minced liver.
Even in a historically low interest rate environment, the amount of debt we have accumulated translates into daunting interest charges. It will get even more expensive when the Federal Reserve dramatically raises interest rates to deal with the highest inflation in 40 years.
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Who would have thought that billions of dollars of stimulus spending and money printed by the nominally independent Federal Reserve and pumped back into the economy when businesses could not produce enough of what consumers wanted would drive up prices? More demand plus less supply equals higher prices. The Fed ignored the inflation risks inherent in the monetary financing of public deficits. After all, there are virtually no limits to money creation in a fiat money system.
The harsh truth is that these people were out for lunch as the cost of living for ordinary Americans rose. Paychecks will feel tighter than usual as inflation outpaces wage increases.
Americans are then told that a key way to help ease rising prices is to pass a $1.85 trillion package of spending programs and tax cuts known as the Bill. Build Back Better, which is currently languishing in the Senate. It will produce good economic results: low inflation and low unemployment.
And now, financial markets are nervous about the steepest round of monetary tightening since the 1990s, with markets pricing in interest rate hikes of more than five quarter-points from the Federal Reserve in 2022.
Debt matters. Financial responsibility is important. The short-term pain associated with fixes that will bring long-term gains is a real challenge for politicians, especially in even years. They would much rather kick down the street hoping the bill will come due with someone else watching.
The American public is equally culpable, electing politicians who lack the courage to advocate for solutions to the debt problem. Those who do run out of office.
To paraphrase the words of Hemingway in “The Sun Also Rises”, “How do you go bankrupt? Two ways: gradually, then suddenly.
Joseph M. Giglio is a professor of strategic management at Northeastern University’s D’Amore-McKim School of Business.