Is it time for U.S. banknotes to include “In Debt We Trust” rather than “In God We Trust”? America’s affinity for adding to the national debt has accelerated over the last few decades, with can-kicking becoming a habit for presidents and lawmakers and the country adopting an infatuation for the color red. Despite the hyper-partisanship intensifying between the left and the right, both sides have abandoned any semblance of respect for economics, accounting, and taxpayer dollars. But they can reject any culpability for the inevitable fiscal reckoning by taking cover under the umbrella held by “The Experts.” Indeed, $30 trillion in debt and trillions more in unfunded liabilities and expenditures should prompt the American people to doubt the infallibility and expertise of the Swamp when it comes to managing the public purse – or anything else for that matter.
National Debt Hits a Somber Milestone
The U.S. national debt reached $30,012,386,059,238.29 on Jan. 31, new Treasury Department data confirmed. Since 1993, there have been only two occasions whereby the national debt fell: October 1998 and June 2001. But the declines were a drop in the bucket to the massive spike in debt accumulation in this span by both the donkeys and elephants.
Approximately $8 trillion of the nation’s debt is owned by foreign creditors and investors, mainly China and Japan. As David Kelly, chief global strategist at JPMorgan Asset Management, correctly pointed out: “That means American taxpayers will be paying for the retirement of the people in China and Japan.”
The U.S. government owes about $6 trillion through public trust funds, while the Federal Reserve controls another $6 trillion after monetizing the debt and supporting the boondoggles regularly approved by each side of the aisle. The rest is owned by depository institutions, pension funds, insurance companies, mutual funds, and others.
Since the beginning of the coronavirus pandemic, the country’s indebtedness soared more than $7 trillion, buoyed by the government’s borrowing and spending binge. Over the last five years, the national debt has climbed by about one-third, driven by Washington’s penchant for the same attitude: borrowing and spending without concern for the present and future generation of taxpayers. And, to no one’s surprise, there is no end in sight to this fiscal madness.
Despite Keynesians and statists proclaiming that the amount of debt the country can generate spotlights its wealth, too much debt can severely hemorrhage and mortgage the nation’s future and perhaps ability to keep the lights on. All for what exactly? It is simple: ensuring the Swamp monsters reside in the corridors of power and are in total control of the levers, buttons, and codes.
Honey, I Accumulated Too Much Debt
Thanks to a concoction of fiat money, an enabling central bank, and a nationwide appetite for big government, the United States has borrowed and printed trillions of dollars it cannot afford. Advocates purport that the red ink flooding the nation’s capital is critical for growing the economy and ensuring the most vulnerable are well protected. It accomplishes the opposite of this self-imposed mandate.
In the private sector, manufacturing too many IOUs will take necessary capital out of the economy, be it in the form of taxation or eroding purchasing power. With the national debt growing faster than the size of the U.S. population, increasing the national debt per capita, the odds of the government defaulting on its debt service obligation amplifies. The government will need to raise the yield on its Treasurys to attract more capital to prevent rolling financial blackouts on Capitol Hill, leading to a credit contagion event where everything is more expensive, from automobile loans to mortgages.
n the public sector, with interest rates anticipated to rise substantially in the coming years to help curb rampant price inflation, the cost to service the debt will climb. Over the next ten years, interest costs are projected to exceed $5 trillion, and, based on estimates from the Peter G. Peterson Foundation, they will represent about half of all federal revenue by 2050. Therefore, the government will need to reconsider its priorities, cut back on the buffet of waste, and leave millions of dependents in the lurch.
Although the consensus among any serious people with a modicum of common sense is that this path of fiscal irresponsibility is unsustainable, it will be more of the same inside Washington should the Federal Reserve System maintain one of its unofficial mandates of eternally feeding the Leviathan. Unfortunately, the Alexander Hamilton doctrine of vast debt being virtuous because it gives the citizens a nudge to support the state is alive and well inside the White House and the Congress.
Remember, eminent economist Ludwig von Mises explained to readers in The Theory of Money and Credit that consuming today means using resources today. But politicians are not omnipotent and powerful beings who can travel to tomorrow to pay for the present-day bill. So, they do the next best thing by borrowing against children, grandchildren, and great-grandchildren.
MMT to the Rescue?
But militant progressives believe they have a tool in their arsenal, something referred to as modern monetary theory (MMT), a brand of snake oil that involves printing money to inject into the Treasury Department. How is this any different from the magical fairy dust floating from the basements of the Eccles Building over the last 50 years? As Mises Institute head Jeff Deist wrote in June 2020: “MMT is not modern. MMT is not monetary. MMT is not a theory.” Like the foolish prescription of going into debt to create wealth, the MMT acolytes aver that accounting gimmickry is the route to prosperity for all rather than the road to fiscal damnation.
~ Read more from Andrew Moran.
