U.S. government debt has exploded from $370 billion to $31 trillion since 1970, with our leaders unwilling to raise taxes to match spending increases.
It hasn’t mattered which party is in the White House: both have found it difficult to lift taxes but easy to boost spending.
The presidents during the 1970-2022 period include:
· Republican Richard Nixon (1970-74),
· Republican Gerald Ford (1974-77),
· Democrat Jimmy Carter (1977-1981),
· Republican Ronald Reagan (1981-89),
· Republican George H.W. Bush (1989-1993),
· Democrat Bill Clinton (1993-2001),
· Republican George W. Bush (2001-2009),
· Democrat Barack Obama (2009-2017),
· Republican Donald Trump (2017-2021),
· Democrat Joe Biden (2021-22).
One way to compare debt during different periods is to look at the ratio of debt-to-GDP. That has soared from 35% in 1970 to 121% in the second quarter. Many economists say that when the ratio exceeds 100%, a debt crisis is likely.
Impact of Rising Interest Rates
The surge of interest rates this year represents a major problem, as it pushes the government’s debt higher. That’s because the government has to continually issue bonds to finance the debt, and interest owed on the bonds just increases that debt.
The 10-year Treasury bond yield has jumped 2.21 percentage points so far this year to 3.72%.
“So many of the concerns we’ve had about our growing debt path are starting to show themselves, as we both grow our debt and grow our rates of interest,” Michael Peterson, chief executive of the Peter Peterson Foundation, which promotes deficit reduction, told The New York Times.
“Too many people were complacent about our debt path in part because rates were so low.”
The current debt total is “jaw-dropping and a real cause for concern,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told The Wall Street Journal.
“It is the result of both borrowing for really important crises, most notably the covid pandemic, but also trillions and trillions of borrowing for no reason other than politicians have stopped being willing to pay the bills.”
Congressional Budget Office Sees Danger
The Congressional Budget Office outlined the danger of a rising debt burden in a May report. “The likelihood of a fiscal crisis in the United States would increase,” the CBO said.
“Specifically, the risk would rise of investors losing confidence in the U.S. government’s ability to service and repay its debt, causing interest rates to increase abruptly and inflation to spiral upward, or other disruptions.”
Further, “the likelihood of less abrupt, but still significant, adverse effects—such as expectations of higher inflation, an erosion of confidence in the dollar as a reserve currency, and more difficulty in financing public and private activity in international markets—would increase,” the report said.
And the debt buildup could make the government reluctant to increase spending or cut taxes at a time of economic weakness.
“Policymakers might feel constrained from implementing deficit-financed fiscal policy to respond to unforeseen events or for other purposes, such as to promote economic activity or strengthen national defense,” the CBO said.