The Enormous National Debt—Not the Debt Ceiling—Is the Problem
If you’ve been following the political news recently, it’s likely you’ve come across headlines about the U.S. government again reaching its debt ceiling. This has prompted all sorts of noise from economists saying if the national debt ceiling isn’t raised, there could be a default, an economic crisis, and much more misery in the near term.
Here’s the thing: the debt ceiling will be raised eventually, but there are bigger problems that need to be discussed.
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This isn’t the first time the U.S. debt ceiling has been a hot topic. Every few years, a debate pops up and you hear threats of a government shutdown. Not too long ago, a federal government shutdown even happened.
Sadly, the bigger issue that hasn’t been getting much attention is that the U.S. federal debt has reached $31.5 trillion. (Source: “Debt to the Penny,” FiscalData, last accessed January 25, 2023.)
This is an immense amount. Nominally speaking, the U.S. government has one of the biggest national debt loads in the world. The worst part: in the coming years, the debt is expected to keep increasing.
A country’s national debt rises when its government incurs annual budget deficits. The bigger and more consistent the budget deficits, the bigger the debt. Unfortunately, in the coming decade, the U.S. government is only expected to incur budget deficits. So, don’t be shocked if, within the next few years, the U.S. national debt surges past $40.0 trillion. As the U.S. economy inches toward a severe economic slowdown, this could happen much sooner than expected.
Adding more fuel to the fire: city and state pension funds across the U.S. have significant amounts of unfunded liabilities. In other words, they don’t have enough money to pay their obligations. State pension liabilities amount to over $8.0 trillion. (Source: “Tackling $8.28 Trillion in Unfunded State Pension Liabilities,” American Legislative Exchange Council, June 23, 2022.)
You have to wonder whether the federal government will step in to help these ailing pension funds. If it does, the national debt will grow even faster.
Beyond pensions, there’s a giant problem around student debt. The U.S. government has backed a lot of student loans, and that could ultimately add another $1.0 trillion to the national debt.
The Higher the Debt Goes, the Worse Things Get
Dear reader, in the midst of the current debt ceiling debate, the biggest thing that’s being ignored is that there’s no end in sight for how high the U.S. debt will go. At the moment, everyone is focused on kicking the can down the street, versus figuring out how to tackle the massive debt load.
In the near term, the giant national debt doesn’t matter that much. The U.S. government can borrow more money without a problem because the government is deemed a “safe” creditor without much default risk. However, you have to ask: how long can this go on? There could come a day when lenders tell the U.S. government, “we want our money back!”
Don’t forget, debt also spirals. With such a huge amount of national debt, the interest expense also gets bigger. So, even if federal government spending remains flat for the coming decade, the interest expense on the debt will make things worse.
I will end with this: there’s never been a nation/civilization that has remained competitive and held its currency value while having a colossal national debt. As the U.S. federal debt continues to increase, we could be getting closer to the time when “ the music stops.” Mark my words: the U.S. dollar could be on the line when that happens, and there could be severe economic misery.
