Did Obama Double the National Debt? Could Trump Triple It?
The numbers don’t lie. President Barack Obama did double the national debt during his eight years in office. President Trump may have made hyperbole a trademark habit but there’s no doubt it was under Obama that U.S. debt increased sharply.
Trump tweeted about it recently.
Funny to hear the Democrats talking about the National Debt when President Obama doubled it in only 8 years!
— Donald J. Trump (@realDonaldTrump) November 30, 2017
He’s right. President Trump has only been in office for about 10 months. When he took office, the debt was approaching $20.0 trillion. In September, the debt passed that scary figure. It now stands at $20.6 trillion and, of course, it’s only going up. (Source: “America’s $20 trillion debt should keep people awake at night,” RT, November 30, 2017.)
The Debt Might Keep You Up at Night
The outgoing Federal Reserve Chair, Janet Yellen, told Congress on November 29 that she’s worried about the U.S. debt. She says it should keep “people awake at night.” Of all the things and speeches that Yellen has pronounced over her almost four years in office, this latest and simple declaration might be her most heartfelt. (Source: Ibid.)
She’s leaving in February and will be replaced by Jerome Powell. Thus, she has no boss to please or position to secure; her words now are a warning Americans should heed. Trump chose Powell because he has a reputation of being someone who will encourage the low-rate regime to continue.
He may not have much choice. The cheap money is fueling the record Dow closing numbers on Wall Street. If the cheap credit tap runs dry, the market could crash—and trigger a recession with it.
How are the tax cuts going to work then? There are simply too many ifs and buts that have not been properly examined in the tax plan for it to work. Then there’s the aging population and the fact that more people will be retiring. That tends to lower the amount of tax revenue. It’s unsustainable.
As for President Trump’s claim that debt doubled under Obama, it is generally right. The “generally” qualification is for those pedants keeping track of exact figures. U.S. debt was about $10.62 trillion when Obama started his first term in 2009. When Trump took over the presidency on January 20, 2017, the debt was just under $20.0 trillion. So technically, Obama merely added about 90%, rather than 100%.
Still, it’s no exaggeration on Trump’s part, where the numbers are concerned. When the Democrats complain about Trump, they seem to ignore this. But Trump’s implication is disingenuous. Obama had to address the disaster that came in the wake of the 2007–2008 financial crisis and all the bailouts it demanded.
Moreover, it does nobody any good to harp on about what Obama did or didn’t do. Trump is the president and he was elected to do a job, not to complain.
Janet Yellen says the debt is still manageable when compared to the gross domestic product (GDP). It’s true that, on that parameter, the debt is certainly a horror show. But it’s more of a B-movie than a full-on nightmare-for-a-month kind of blockbuster. Thus, where Trump might want to concentrate his efforts is on avoiding getting into deeper debt.
The overall solution is to stimulate more tax revenue. Either you establish the conditions for widespread economic growth and higher employment or you raise taxes. Trump has chosen the first path while proposing drastic tax cuts to sectors of the population that don’t need them. It’s a risky move that could end up accelerating the rate of debt accumulation.
Even if the Fed raises interest rates by a single percentage point, the interest on the debt alone would be $200.0 billion. Add to that the infrastructure plan that puts the “Great” in Trump’s plans for America.
In September, President Trump managed to avert a government shutdown by raising the debt ceiling until December 8. That allowed everything to proceed. In other words, nothing has yet been done about stopping the debt accumulation. Let’s not forget the various disaster costs to account for after a record hurricane season at the end of the summer.
The 1980s Called And Want Their Tax Plan Back
The debt is accumulating, another government shutdown is looming, and—all the while—real salaries have seen negligible increases while inflation continues to suggest that there’s no organic growth. The stock market records create a false impression of prosperity.
Yet, in the current irrational exuberance of a record-long bull market (technically, the Dow has been recovering since 2009 after the big losses of 2008), there’s no telling where and when the next shock to cause a crash might emerge. The next debt ceiling crisis and potential government shutdown might prove just such a trigger—and that’s just in the next few weeks.
Oh, and then there’s the $700.0-billion defense budget for next year.
Apparently, Trump didn’t hear the phone ringing when the 1980s called and asked for their trickle-down economics back. Trump has proposed a tax reform that risks breaking the public accounts under its weight.
There are too many variables that must work together. The corporations and millionaires must repatriate their funds; they must spend whatever savings in taxes they get on creating new jobs; the new jobs must pay well enough to stimulate middle-class spending; and tax loopholes must be tight enough to ensure that the system runs like a machine.
Should one of these factors not work as planned, it will be like putting a stick in the proverbial wheel. That’s sort of what happened in the good ole’ 1980s, when the debt made its big upward move.
In all this, the Federal Reserve must maintain low rates—at the risk of causing a dollar collapse. Any increase in the federal interest rate would cause the interest on the national debt to rise. It’s not just Jack and Jill who will be paying more interest on their credit card, car loan, or mortgage. The Federal government must also pay for its borrowing habits.