Washington, We Have a Problem: U.S. Debt Tops $20 Trillion
If President Donald Trump wants to ease Americans’ concerns about the economy, he could borrow the speech technique from commercial airline pilots. “Good morning, ladies and gentlemen, this is your president speaking: U.S. public debt is now cruising at an altitude of $20 trillion and climbing. Fasten your seat belts.” If Trump were an astronaut, he might say “Washington, we have a problem!”
Also Read: How Much Is the U.S. Debt Ceiling & How High Will It Go Under Trump Presidency?
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Jokes aside, the debt is not Trump’s fault. Nor can we ascribe any major faults to him with how he is trying to address it. Blaming and shaming isn’t going to make the U.S. national debt magically disappear, but solutions must be found quickly. At $20 trillion and counting, the debt has passed the threshold of 100% of gross domestic product (GDP).
The quick solution to confronting the debt was, what else, approving the possibility of getting into deeper debt. Yes, Trump himself has signed a pact with the likes of Senator Chuck Schumer and Nancy Pelosi—the minority Senate and House leaders, respectively. They’ve decided to continue to raise the debt ceiling to avoid the threat of default.
The U.S. public debt continues to grow. On September 8, it reached the $20 trillion mark, the latest dubious record. To avoid a new threat of default, Trump agreed with Congress to raise the debt ceiling until December 8.
Until then, you might not notice any changes. But, after that, the whole debt ceiling ordeal begins anew. Of course, conservatives, for their part, deeply regret that the legal limit of the debt has been increased without structural reform. It’s just a bit of sweeping the problem under the proverbial carpet.
The Republican majority and the Democratic minority, sooner or later, will have to get around the budget deficit and the public debt. Meanwhile, they are also dealing with such burning issues as immigration and the construction of a wall at the border with Mexico.
Those who have invested in the stock market have no doubt wondered how Trump could possibly get Congress—even with all its Republicans—to pass his ambitious tax reform bill. Trump has proposed drastic cuts. The richest Americans and corporations would see an especially large income tax cut, from a 35% rate to 15%–20%. Without that tax reform—or rather, when it becomes clear that such big cuts cannot be made—the stock market is going to be swarmed by one major reality check. It’s going to take the form of a massive stock market crash.
Interest Alone Could Cost Taxpayers Some $6.0 Trillion a Year
The problem is that, even when broken down into its various components, the U.S. public debt is a tough nut to crack (or rather, a tough problem to shake off). It’s true, however, that about a quarter of it is made up by inter-governmental debt.
Thus, there’s only the principal to pay back. But, for the remaining $15 trillion or so, interest could reach as high as $6 trillion over the next decade. Talk about a millennial reality check. It’s a high figure that, according to some estimates, will force the United States to spend $6 trillion in interest over the next 10 years (given that it has spent about $480 billion a year on debt until now). (Source: “It’s Official: Government Is $20 Trillion In Debt,” Fitsnews, September 12, 2017.)
At least we know that those who expected debt to worsen were right. With the debt now at just about 100% of GDP, in the near future, debt could grow to 130% of GDP:
All kinds of people, including many investors, are protesting Trump these says. It’s become fashionable. But, even the least hypocritical among them will admit that Trump’s tax plan and the perception of a more business-friendly administration has helped boost the Dow Jones to unimaginable levels since last November.
The fact is that Trump’s proposed tax reforms, with its huge cuts in corporate and middle class rates, would put too much pressure on public accounts. Then there’s the issue of the Federal Reserve and its Chair, Janet Yellen. Trump has to choose whether to renew her tenure or pick a new person. Yellen offers predictability to investors during a delicate moment for Wall Street.
The interest rate isn’t just for investors and mortgage holders to worry about; the government pays more interest on its debt when rates are higher. Trump’s ambitious infrastructure plans, and his even bolder tax cut plan, suggest that any government spending will come from a budget deficit. I wonder how sustainable this might be, given that so much of the world is feeling a restrictive monetary vibe.
Sooner or later, Yellen (or her successor) will raise rates, boosting interest payments while also risking a massive stock market crash and recession. Yellen has been clear about her interest rate decisions, sending ample warnings ahead of a change. If Trump decides to switch horses in the middle of the race, Wall Street could panic.
Americans should remain concerned about the public debt. The extent of the debt’s size, and the speed with which it has piled up, has been unprecedented. The U.S. debt exploded in the wake of the 2008 financial crisis. During President Barack Obama’s two terms, he saw the public debt almost double, from $10.6 trillion to $19.9 trillion. At $20 trillion, the national debt could spook the markets after the revelers wake up from the drunken stupor of their post-“Apple-8” phone launch parties.
But often, complicated things happen in succession. The debt reached its $20 trillion level just as President Trump signed an agreement with Democrats to suspend the debt ceiling. Politically, it was a good move on the president’s behalf. He was able to tie it with the need for aid related to the Hurricane Harvey emergency in Houston. Of course, Hurricane Irma then came along during the weekend and left another trail of destruction.
