from Birch Gold Group:
The U.S. economy is headed in the wrong direction even faster. With debt growth outstripping economic growth this rapidly, should we put the dollar on deathwatch?
We are living through an incredible period of economic history in the United States. It should be discussed in college-level economics classes for decades to come.
The national debt has surpassed a staggering $35 trillion for the first time in history. While that number is truly breathtaking (in a bad way), according to the House, here’s how that towering pile of debt breaks down:
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- $104,497 per person
- $266,275 per household
- $483,889 per child
According to the same report issued by the House, just one year ago the debt was a mindblowing $32.65 trillion. That means it grew by a whopping $2.35 trillion over the past 12 months! So over the last year, this breaks down to:
- $196 billion in new debt per month
- $6.4 billion in new debt per day
- $268 million in new debt per hour
- $4.5 million in new debt per minute
- $74,401 in new debt per second
During the time I wrote this sentence, the debt pile grew by $700,000. Compare that to the median household income of $74,580 – this sentence cost the nation the TOTAL annual incomes of 9 ½ American families.
The federal government pays interest on its debt, just like everyone else. Over the last three years, the cost of interest alone on the national debt has doubled, to almost $1.1 trillion.
That means even if Congress got its act together and balanced the budget today, our debt pile would still increase by over $1 trillion per year!
How much longer can this continue?
Just how sustainable is the biggest debt mountain in the universe?
Fans of Modern Monetary Theory (MMT) are eager to tell you that government debt is an illusion. Janet Yellen isn’t willing to say that out loud, though she certainly acts as though it’s true.
Here’s a shocking observation of reality that might upset both the MMT crowd and their lead apologist, Paul Krugman:
When you borrow money, the lender expects to be paid back.
That’s the way borrowing works! That’s the way borrowing has always worked, throughout human history.
So when Krugman hand-waves away the national debt by saying:
…the debt we create is basically money we owe to ourselves, and the burden it imposes does not involve a real transfer of resources.
He’s wrong. Dead wrong. (Here’s a more detailed explanation.)
The champions of government debt look to an abstract ratio called debt-to-GDP to establish the sustainability of a nation’s debt.
Gross domestic product (GDP) measures the entire economic output of the country, including consumer spending. Theoretically, if the government taxed every transaction at 100%, GDP represents the total amount of wealth that could be extracted from citizens. The debt-to-GDP ratio is a lot like the mortgage loan to income (LTI) ratio or debt-to-income (DTI) ratio used by mortgage lenders to evaluate whether a borrower is likely to repay a loan.
So the debt-to-GDP ratio is important.
If Biden’s trillions in deficit spending actually resulted in economic growth, as he argues it has, that would be reflected in a flat debt-to-GDP ratio.
If the money was wasted on non-productive pork-barrel projects that didn’t lead to economic growth, well, then we’d expect to see the debt-to-GDP ratio rise.
According to Wolf Richter’s analysis, that is exactly what’s happening right now:
Since January 2020, current-dollar GDP grew by 31%. That was a lot, see the steep curve in the chart above. Inflation had a lot to do with it. Stimulus spending in 2020 and 2021 and then deficit spending over the past two years also had a lot to do with it.
Over the same period, the debt grew by 50%. As current-dollar GDP grew 31% and the current-dollar debt grew by 50%, the burden ballooned.
The burden is expressed as the debt-to-GDP ratio.
The “Debt-to-GDP” ratio since 1980 has been visualized on the official Fed graph below, and it is currently higher than 120% (source):
You’ll see that, in 2016 at the end of the Obama administration, that ratio hovered at 100%.
It’s gotten MUCH worse since then – despite the pandemic-era spike associated with a national lockdown that crushed GDP.
This paints a picture of a government that’s massively increasing our nation’s debts, without creating a significant amount of economic growth.
