By the time Reagan was in the second year of his presidency, the US national debt hit $1 trillion dollars. That is the first time I remember discussions about the national debt. It was an astounding figure at the time and Reagan was pilloried by the press for his tax cutting, ramped up spending, and trickle down policies. David Stockman covers this time period in his excellent book "The Great Deformation" about the financial history of the US from the formation of the Federal Reserve to the present.
So it took about 205 years for the US to accumulate its first $1 trillion in debt. In less than 5 years the next $1 trillion would be accumulated. Again, Reagan took it on the chin for his administration's policies that contributed to this debt build.
When the Bush Administration took the country from $4.5 trillion in debt to $9 trillion in debt, he was called "unpatriotic" by Senator Barack Obama, who then proceeded to vote against an increase in the US debt limit. That's the Barack Obama I voted for in 2008. Someone who appeared to have the juice to take on these issues. I don't who the guy was/is who moved into the White House in January 2009. He's not the guy who campaigned so well in 2008. He hasn't had my vote or trust since. When Vice President Dick Cheney famously said "deficits don't matter," that may be the only position he ever took that Democrats could wholeheartedly endorse.
Ironically, on Black Friday, the US government took a major step forward to insolvency by passing the $18 trillion debt level. Under the last six years of the current administration, we have managed to accumulate the same amount of debt as the nation accumulated in total over its first 232 years of existence. Yet not a single network bothered to cover this milestone. I first wrote about this in October 2013 when gasoline was officially poured on the debt fire.
Who knows, maybe the US national debt really doesn't matter. That's one myth about our debt, here are some others:
"It's the Net Worth that matters, not the Gross Debt"
Analysts often pay attention to a country’s “net debt” instead of its gross debt. If you have a million bucks in debt, and a million bucks in cash, then your ‘net debt’ is zero. It washes out. It's manageable. This same approach is also applied to GDP. Again, a million dollars of debt is cancelled out by a million dollars of assets (GDP).
The problem is that the US government doesn’t have any cash. The Treasury Department opened its business day on Black Friday morning with just $71.9 billion in cash, or just 0.39% of its total debt level. Apple has more cash on hand than that. In addition, even after altering the way GDP is calculated so that they could go back to 1945 and artificially increase the nation's GDP figures, the US GDP is about $17 trillion. We are now $1 trillion in the hole versus a revised GDP calculation that artificially inflates the number by more than $1 trillion. So we're actually $2 trillion in the red.
“We can make some adjustments to get our debt under control.”
Both Democrats and Republicans have painted themselves into a corner and proven this is a lie. Politicians have been saying for decades that they’re going to cut spending and get the debt under control.
The reality is that the last time the US debt actually decreased from one fiscal year to the next was back in 1957 during the Eisenhower administration. During the Obama administration, the US government has been spending roughly 90% of its entire tax revenue (including payroll and gas taxes) just to pay for mandatory entitlement programs and interest on the debt.
This leaves almost nothing for practically everything else we think of as government. To keep our boat afloat, both parties need to embrace identical fiscal and monetary policies.
“The debt doesn’t matter because we owe it to ourselves.”
This is probably the biggest lie of all. Two of the Social Security trust funds alone (OASI and DI) own $2.72 trillion of US debt.
The federal government owes this money to current and future beneficiaries of those trust funds, i.e. every single US citizen alive and all the new ones entering each year.
I fail to see the silver lining here. How is it somehow ‘better’ if the government defaults on its citizens as opposed to, say, banks? To stay in power, both parties have to find any way possible to avoid pissing off the US citizens who see these entitlements as their birthright.
“The US can always ‘selectively default’ on the debt”
Another lie. People think that the US government can pick and choose who it pays.
We could make a big stink about China, for example, and then choose to default on the $2 trillion in debt that’s owed to the Chinese. Nice try, but this would rock global financial markets and destroy whatever tiny shred of credibility the US still has.
Others have suggested that the government could selectively default on the Federal Reserve (which owns $2.46 trillion of US debt, and that much more as mortgage and sub prime private sector debt). Again, possible, but given that the Fed (the issuer of the US dollar) would become immediately insolvent, the resulting currency crisis would be completely disastrous.
“We can tax our way out of this mess”
No, we can’t. Looking at the numbers, since the end of World War II, regardless of economic growth or tax policy, US government tax revenue has consistently been roughly 17% of GDP.
We can raise tax rates, but it doesn’t move the needle in terms of revenue as a percentage of GDP. Even if we take every last penny earned (or stolen) by the 1%.
You’d think with this obvious data that, rather than try to increase tax rates (ineffective), they’d do everything they can to help grow GDP. But no, we have to regulate every aspect of people’s existence: How you are allowed to educate your children. What you can/cannot put in your body. How much interest you are entitled to receive on your savings. The water that falls out of the sky onto your property, and on and on and on.
All of this costs time, money, and efficiency. So do never-ending wars and policing a global empire.
This isn’t about any single person or President. The problem is with the system itself. History shows that every leading superpower from the past almost invariably fell to the same fate. Great powers often feel that their wealth and success entitles them to spend recklessly and wage endless, arrogant wars. The Romans. The Ottoman Empire. The British. And now the US. The lesson here is very clear. Debt weakens a nation and the society upon which it is built.
Generations that will not even be born for decades will inherit these debts by complete accident of birth.
And the people in charge of the system have backed themselves into a corner where there is no way out other than to default– either on their creditors (creating a global financial crisis), the central bank (creating a currency crisis), or on the citizens themselves (creating an epic social crisis). Being a Republican or Democrat doesn't matter at these debt levels. To maintain power, both parties have to implement the same policies that keep the charade going. So we will see more and more stories and "political" debates about social issues (race, immigration, marriage equality, abortion, gender wars, drugs, death penalties, torture, etc.) to serve as a distraction from the financial story that will have the biggest impact on our lives now and for generations to come.
Bottom line: Although through benign neglect of the issue we are being told not to think about our debt issues, this is not a consequence-free environment. Maybe this will change through media scrutiny of a Republican administration or become a campaign issue during the next Presidential race. Republican administrations seem to be held to account more aggressively by the media. While we can't fix the debt problem with our votes, we can certainly each reduce our own personal exposures to what happens next.
