I am pleased to announce that a deal has been struck with Senate Majority Leader Mitch McConnell, Senate Minority Leader Chuck Schumer, Speaker of the House Nancy Pelosi, and House Minority Leader Kevin McCarthy - on a two-year Budget and Debt Ceiling, with no poison pills....
The U.S. debt, as a percent of GDP jumped up after the end of World War II, and has again risen. Should we be concerned?
The U.S. government debt is now approaching an all-time high of $22 trillion. So why don't we just pay off the debt in a reasonable period? That's considered to be folly by most economists:
In 2016, Donald Trump said, “We’ve got to get rid of the $19 trillion in debt. . . . I think I could do it fairly quickly.” But paying off all debt makes no sense. As Alexander Hamilton explained, debt can be a blessing: It can facilitate trade, finance national defense, fight recessions, fund investments, and provide liquid and safe assets for investors. What we really need to do is put the debt on a stable and sustainable path. That will be hard enough.
So you would think that Republicans, and Trump, in particular, should be expressing alarm, for this debt will continue to escalate:
Nine years ago, I rhetorically asked in an article published by The Huffington Post: How Serious is Our National Debt? In a nutshell, not serious at all if the interest rate remains low. What is low? If the Federal Funds Rate is at 3% or lower, we should be a creditor nation and borrow money so we can re-invest it for higher productivity:
An equivalent example is the free enterprise system. A company borrows money to make more money, called profits. The Federal government works on the same principle.
At some point north of 5%, we stop borrowing, and, instead, cash-in our debts at the higher rate. That is, the funds we have borrowed at a low rate, are now used to lend to others at a high rate. It's almost like a shell game. We can't lose. Part of this caper is also related to taxes and shoving items into the future for the generations to come. We have been parlaying this process since 1931. No reason to believe that the present period is anomalous.
Did that lose you? Well, go back and read my nearly decade old HuffPo. Or, if you want input from a more reliable financial source, try this article published earlier in the year: WHY THE $22 TRILLION NATIONAL DEBT DOESN'T MATTER -- HERE'S WHAT YOU SHOULD WORRY ABOUT INSTEAD. To summarize:
- The U.S. federal government's debt will hit a record $22 trillion.
- That is $2 trillion more since the arrival of Donald Trump.
- Divide by our population, and you get $67,000/person.
- Family of four? You owe $268,000.
- What is $22 trillion worth? Well, our annual economy is $20 trillion, and is equal to the gross domestic products of China, Japan and Germany combined.
- We have run a federal debt just about continuously since 1931.
Now that we are in the 3% interest range, there will be a bit more anxiety-causing debt-ceiling debates of woe is us. Don't sweat it.
One final point of information has to do with to whom we owe the money:
- Federal agencies, yes, our federal agencies are owed 27% the debt. We owe money to ourself, with about half in Social Security and Disability Insurance.
- The public debt is 73%, or $16.1 trillion:
- foreign governments are owed 29%
- China 5%
- Japan 4.8%
- etc.
- etc. (go to the link for details)
Nine years ago, China's ownership of our debt was 6%, and pundits were worried that if they took this money out and invested it in Africa, our economy would collapse. So what happened? China did spend a lot more to build up their resource base in Africa. The result, a drop from 6% of our national debt to 5%.
Are we hurting? We are today the only major power with a secure economic superstructure. But, as much as Trump is America First, his administration is attempting to neutralize China in Africa. As screwed up as the Trump White House might be, as a nation, we are not all total idiots.
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