Submitted by Taps Coogan on the 1st of February 2017 to The Sounding Line.
With the US federal debt now perched near $20 trillion, equaling over 100% of GDP for the first time since World War II, balancing the federal budget is more important than ever.
The last eight years under the Obama Administration have resulted in an unprecedented $8 trillion increase in the federal debt from $11.9 trillion to $19.9 trillion today. Yet for the first time since the 2nd Bush Administration, so-called fiscal conservatives hold the reins of all the institutions required to execute a plan to balance the budget.
Unfortunately, borrowing on behalf of the US taxpayer has been perhaps the most bipartisan ‘policy’ in Washington. Of the $8 trillion tab left from the Obama administration, $6.4 trillion occurred during the six years of Republican control of the House of Representatives, and four years of control of the Senate. Every US President since Truman (and likely before) has overseen an increase in the federal debt. Republicans and Democrats alike have embraced more debt every single year since 1957. Despite incessant claims to the contrary, even the Clinton Administration saw an increase in the Federal Debt every single year.
|% Increase in Federal Debt|
While the country waits for the budget priorities of the new administration and Congress, the following figures and graphs illustrate just how counterproductive perennial federal debts have become. The truth is that little is understood about the enormous cost that the US federal debt has already inflicted on the US economy and taxpayer.
Our story starts in 1947 when itemized federal budgets become readily available. In 1947 the outstanding federal debt was $258 billion. With the US emerging from WWII that figure was astoundingly high for the economy of the time: 110% of GDP. With military spending winding down and rapid economic growth at home, the federal debt would decrease as a percentage of GDP until 1974. However the debt was never paid down and debt growth accelerated once again after 1974. Its absolute value has increased every year since 1957, now standing at $19.9 trillion or 105% of GDP.
Demonstrating the cost of failing to pay down the debt is as simple as it is startling.
In total, the US has run a cumulative $12.3 trillion in deficit spending since 1947. During the same period of time the US has paid $12.5 trillion in interest expenses.
Stated again, the US has spent more on interest expenses since 1947 than its cumulative budget deficits. As the charts below show, if the US government had stopped borrowing and saved its surpluses, no federal debt would have been needed between 1947 and 2016 to meet actual program expenses. In fact, today we would have a $200 billion in a rainy day fund and no debt. Instead we have a federal debt of $19.9 trillion and massive budget deficits. Let that soak in for a minute.
The US has been paying an average of 1.7% of GDP every year since 1947 in interest expenses on the federal debt, more than enough to cover its deficits. The US federal government has fallen into a trap of borrowing to pay its debts.
Regardless of the issue of eventual default, made ever more likely if interest rates were to rise, the US federal debt is doing damage to America’s prosperity right now. It may sound crazy but the US interest expense is the very reason we have a federal debt.
US Federal Government Interest Expense via the Federal Reserve
US Federal Debt via TreasuryDirect.gov