On January 31, the national debt quietly eclipsed $30 trillion.
The US government has run up debt at breakneck speed after raising the debt ceiling. The national debt broke through $29 trillion on Dec. 16. It took just 46 days for Uncle Sam to add another $1 trillion to his massive pile of debt. It took less than five years for the national debt to grow from $20 trillion to $30 trillion.
And there is no end to the borrowing and spending in sight. Despite a monthly record in receipts to the US Treasury, the federal government still managed to run a deficit in December. That month alone, the federal government spent $508 billion. The was the highest December spending level ever. Through the first three months of fiscal 2022, the federal government had already spent $1.43 trillion. That’s a record for the first quarter of any fiscal year, according to Reuters.
There is even more spending coming down the pike. Congress has already passed a massive infrastructure bill. For the time being, the “Build Back Better” bill has stalled. But there is no doubt the Democrats will come up with another plan or they’ll strong-arm Joe Mancin (D-WV.) into getting on board with the plan. Supporters of these big spending plans promise tax increases and government savings will “pay for” the spending. But it’s almost certain tax receipts will fall short of projections and spending will be even higher than budgeted.
That’s how government always works.
According to the National Debt Clock, the debt to GDP ratio is 128.02%. Despite the general lack of concern in the mainstream, debt has consequences. More government debt means less economic growth. Studies have shown that a debt to GDP ratio of over 90% retards economic growth by about 30%. This throws cold water on the conventional “spend now, worry about the debt later” mantra, along with the frequent claim that “we can grow ourselves out of the debt” now popular on both sides of the aisle in DC.
Thirty-trillion is an incomprehensible number. To put the debt into context, every US citizen would need to write a check for $90,221 to pay off the debt. The burden is even heavier for taxpayers. Every American taxpayer would have to pay $239,808 to eliminate the debt.
The ever-growing debt is one reason Peter Schiff says the Fed can’t do what it claims it will do to fight inflation. The central bank needs to raise interest rates. But that would not play out well for a government buried in debt. Any significant increase in rates will bury the US Treasury in interest payments.
Furthermore, the US government needs the Fed to monetize all of this debt. The central bank buys Treasury bonds on the open market with money created out of thin air. This creates artificial demand in the Treasury market and facilitates the US government’s debt financing. Since 2019, the Fed has bought four times the number of Treasury bonds as international holders and has been one of the biggest players in the Treasury market. In 2020, the Fed monetized more than 100% of notes and 90% of US bonds.
If the Fed follows through and pulls out of the bond market, who will take up this slack? And what happens if the Fed actually starts shrinking its balance sheet and dumping bonds into the market? Schiff said it would crash the bond market.
If the Federal Reserve is no longer buying any Treasuries, and in fact, again, selling Treasuries, and the US government is selling Treasuries, and the various trust funds, like the Social Security Trust Fund, are also selling Treasuries, everybody is trying to unload low-yielding Treasuries. What private buyers are going to buy them? Nobody is going to buy a 10-year Treasury yielding 1.8% when there’s a 7% inflation rate.”
Crossing the $30 trillion threshold will create a little media buzz over the next few days, but then Uncle Sam will go right back to business as usual — borrow and spend. The fact is, the mainstream is convinced the debt really isn’t a problem because it hasn’t really proven to be a problem yet. But nothing is a problem — until it is. Kicking the can down the road works just fine until you run out of road.
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