Two years of economic positives have been the regular headlines in the nation’s financial news media. The “Trump Bump” has seen a stock market boom, unparalleled economic growth, massive business expansion and much more. We have seen for the first time in 10 years wage growth exceeding 2% and outpacing inflation. Job growth has been exponential, with the longest period of sub-4% unemployment in decades.
Imports are up, exports are up … fears of trade wars hurting US markets have been disproven (which we all knew, since trade wars negatively impact the country with the trade surplus, not the country with the negative trade balance). It is not just an over-heated economy with the good times rolling – this has all occurred while the Fed continues to raise interest rates, which is historically a market depressant. That means it is durable, and substantive.
Without question, what goes up always comes down. The growth fueled from 2009-2017 occurred from government intervention, not natural market performance. Zero interest rates, quantitative easing, inflationary fiscal policy … ALL contributed to artificial GDP growth: stock market appreciation without wage and job growth. Nonetheless, combined with the robust Trump pro-growth policies, we have enjoyed an historic bull run.
But one subject, of many, that could derail the good times is the mounting US federal debt.
Yes, this sounds familiar. This is the proverbial “boy who cried wolf” story coming from the “gloom and doomers.” Skeptics rightly point out that those conservatives in the Republican Party have been complaining about the debt for decades. But whether in OR OUT of power – and they are currently in power – Republicans still continually vote for more government spending.
Our readers are smart enough to know that being a Republican “politician” is quite different than whether they actually vote on true, conservative economic orthodoxy that recognizes the risks from liberal spending habits with the taxpayer dime, regardless of party.
The debt is a danger not just to economic growth and economic good times, but to our very way of life. We have already passed the point of dealing with it with just a little pain – moving forward the solutions will be difficult and costly.
Here are some debt figures – US debt “by the numbers”:
- “Total Federal Debt”: $21 trillion and rising.
- “Unfunded liabilities of the Federal Government”: $114 trillion. These are future obligations of the federal government, such as pensions, government retirees and future social security recipients.
- “Federal Debt as owed per capita within the United States”: $65,000+.
- “Federal debt as owed per taxpayer”: $176,000.
- “Projected year of Social Security insolvency”: 2034. Although this projection, like so much of the government’s accounting gimmicks, is not really an accurate estimate. Social Security is already bankrupt – there is no trust fund, just $2 trillion of “IOU’s.” The US pays social security from existing tax revenue and borrowing. The year 2034 is simply the date it is projected that tax revenue will not support the current payment obligations, and the US will have to raise taxes or lower benefits to satisfy our social security obligations.
These numbers are merely accountant entries as compared the tsunami of state and local debt, personal debt, and blue state pension obligations all taken together. The chance we can reasonably pay-off these obligations grows smaller and smaller each day. More than likely, the risk of default and non-payment is increasingly the most likely outcome, with unknown consequences as the result. It will not be easy or pretty when the day of reckoning arrives.
What does a solution look like? Massive cuts in government spending, an increase in the age you can receive social security benefits, means-testing social security and Medicare, virtually eliminating disability, increasing the collection of tax revenue in some capacity or another … these are just the beginning steps that will need to be taken and soon if they are to make a difference. The American people have always been willing to sacrifice for the greater good – but this plan could not pass if recommended to the voter by our current crop of leaders. Government sacrifice must come first – cut Congressional pay, cut staff, cut staff pay, no retirement, healthcare like the public has – take those steps and the goodwill could be found for some compromise on debt reduction. But Congress and the President taking such steps feels like the “snowball’s chance” as it approaches the gates of hell.
There is some good news – ALL current US assets are priced at $138 trillion – that is above the total of unfunded government obligations for the first time in years. In other words, we have a net worth! Tax reform has increased revenue into the government – pro-growth and strong dollar policies will increase money for the government to pay our bills. But our willingness to step back from international affairs is signaling the US is okay with other powers taking the lead in hotspots around the globe. This is the prevailing sentiment of US voters and Trump’s preferred foreign policy position. BUT … that is also leading other world powers to reconsider the use of the dollar. The American people do not seem to connect that “exorbitant privilege” also came with the responsibilities of maintaining global order. Replace the dollar and our ability to run deficits of their current size becomes nearly impossible.
So many issues are going our way, it would be a shame to squander this moment in history. But political will is needed to address the debt – it is growing while our ability to pay it is shrinking.
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