The Emerging National Debt Crisis

If you’ve been paying attention at all, you know that the U.S. national debt has soared to over $22 trillion. The government keeps pilling it on every year – $16 trillion since 2000, $11 trillion since 2008, and $2 trillion in the past three years alone.

The Congressional Budget Office believes that the national debt will rise to $30 trillion by 2030. Should we be worried?

It depends on who you ask. One opinion is that our economy is growing, which means it can support the large debt. The economy and national debt are viewed along parallel lines. If the economy grows more than the debt, we can pay off more of what we owe. Therefore, there would be no reason to be concerned.

Then there are interest rates. Interest rates, for the most part, have been declining since the 1980s, while at the same time, the national debt has risen. With low-interest rates, more people take out mortgages and add to the debt. With lower interest rates, payments are lower and make up a lower percentage of the overall economy. Sure, we keep borrowing, but it costs less.

A good sign is that interest rates are slowly rising. This may put an end to the spending free-for-all.

If the economy and national debt were to continue to grow along parallel lines, it might be manageable, especially if interest rates are kept low. However, these scenarios are unlikely to happen.

Economic growth is bound to slow, as it already has. Some experts are talking about a recession in 2020. If the trend in rising interest rates continues, the national debt to economic growth ratio will become unbalanced. The debt will become more expensive to pay off.

That’s when the national debt will turn into a serious national problem.

With both the national debt and deficit growing out of control, economic disaster looms in the future. Can this trend be reversed?

The US deficit reached $234 billion during the first quarter, up 8.7 percent from the first quarter of 2018. This February $234 billion deficit has set a record. Interest payments alone were $28 billion, compared to $23 billion in February of 2018. The deficit is the difference between the money the government takes in versus what it spends. Debt is rising while revenues are down, despite the increase in interest rate payments. President Trump’s tax cut has lowered revenues, while government programs are rapidly adding to the debt. Spending for the fiscal year 2019 has increased by 9 percent.

The government deficit from October 2018 to October 2019 is budgeted at $544.2 billion, a huge increase of 40 percent. During 2018, the U.S. also issued $1.3 trillion in additional debt, which is the largest increase since 2010.

Unfortunately, the trend of higher spending and lower revenues shows no sign of reversing. The national deficit is expected to hit $1 trillion by 2022.

Treasury Secretary Steven Mnuchin has argued that with a one percent annual grown in GDP, trillions of dollars in revenue will be added for the government. While the 2018 GDP was at 3 percent, revenues are down for 2019.

Should we be concerned? Most definitely.