Dakota Beacon

The United States has a debt problem. It typically spends far more than the revenue it collects. Nevertheless, in the coming weeks the House of Representatives will vote on a bill to raise the debt ceiling even further. An obvious question would be, “How much debt is too much?” A layman’s understanding follows.

Put numbers to the claim and the picture looks like this. A reasonable measure of a nation’s economic health calculates its debt divided by its gross domestic product (GDP). The GDP reflects the total monetary value of the goods and services sold by the country in a year. This debt-to-GDP ratio (what a country owes divided by what that country produces) ideally should be below 100%. This percentage becomes a sensible measure of a nation’s economic health.

In 2022 the US GDP was $25.46 trillion (a big number) and the debt was $30.93 trillion (another big number). Therefore, the US debt-to-GDP ratio would be almost 122% -- a very unhealthy state of affairs given that the US owes much more than it produces.

Here are some associated risks. First, if the debt continues to grow unabated, those people or countries who have loaned money to the US government (creditors) will lose confidence that the US government can pay back what is owed them.

Second, carrying a large national debt year-to-year encourages the US government to print money thus diluting the debt through currency inflation. Those lending money to the US government would probably demand higher interest rates or cease lending dollars to the US altogether. Either way, the US dollar would lose its place as the world’s reserve currency resulting in severe depression.

Third, the more money the government borrows, the less money is available for the private sector. Increasing government debt takes away dollars that could have been invested in corporations, research and development, and education.

Fourth, consider the annual interest on the debt. In 2022 the interest on the debt was $475 billion or 1.9 percent of the GDP. Every dollar spent on interest is a dollar not available for other purposes. At this rate, by 2033 the interest on the debt will exceed the budget for defense or Medicaid. So far these examples illustrate the magnitude of the problem.

Few people understand the dichotomy of the national debt. Simply put, the debt breaks down like this. Two elements make up the gross national debt. Public debt, the first element, comprises treasury bonds, bills, and notes that investors purchase. Investors include domestic and foreign individuals, banks, insurance companies, hedge and retirement funds, foreign institutions and governments, and endowments. Intragovernmental holdings comprise the second element, that is, what the federal government borrows from trust funds it created. These trust funds include Social Security and Medicare. In a word, the US government borrows from itself (sleight of hand?) – with interest rates defined by law. Only the US Treasury, not the public, can engage in intragovernmental borrowing. The breakdown of the gross national debt: 72 percent public debt and 28 percent intragovernmental debt.

Sooner or later the debt must be dealt with. In December 2021 Congress enacted a $2.5 trillion debt limit increase. But, the government reached that statutory limit on January 19, 2023, and extraordinary measures allowed the Treasury to pay obligations until at least June 2023. What then?

Enter the song-and-dance teams on both sides of the Congressional aisle. Here we go again with the austerity-versus-tax increase debates. Republicans and Democrats, under the pressure of a statutory deadline, wrestle over the issue of “Spend money we don’t have.” Authority for the US government to accept additional debt then comes up for debate. Certainly the corporate media love it. What better way to sell news than the topic of money – unless it’s sex, drugs, or alcohol abuse?

To review, the debt ceiling dance goes like this. Conservatives and Republicans view the debt as an immediate threat to our economy. That danger is in our face right now. They advocate austerity, cutting federal expenditures, and balancing the budget – when there is one to balance. Liberals and Democrats, on the other hand, see the debt problem as something on the far horizon. It may be a problem someday, but not now. Today, however, increased taxes (especially on the wealthiest Americans) will help balance the budget – when there is one to balance.

Stopping the annual deficit spending is the only sure way to halt, then reduce, the national debt. To do this requires the discipline to balance the federal budget. Unfortunately, in several instances, years go by with no budget at all but is replaced with a slew of continuing resolutions.

One possible solution would be to grow the economy instead of the government. Allow the US economy to grow and expand. Get government off the backs of businesses, quit demonizing them, and let them do what they do best – make money. If allowed to grow, businesses will increase the national wealth generating taxable revenue. But that also is fraught with ideological quibbling.

Experience remains a hard taskmaster. It may take the painful experience of financial disaster for fools to see the light. Unfortunately the rest of us will suffer as the light slowly dawns.

On second thought, we elected the fools to office! We can always throw them out!

Dennis M. Patrick can be contacted at (JavaScript must be enabled to view this email address).