The New Hampshire primary is now a memory, and the road show is off to South Carolina followed shortly by what is known as the SEC primary through the deep South.
As the red and blue clown cars head down I-95, it is still important that the nation’s eyes rest on the happenings along the Potomac, where the budget deficit is projected to expand to $544 billion, $105 billion above last year’s levels. It is in D.C., where Obama has just announced that he is going to make climate change an integral part of military planning all the way down to the tactical level in the field. And on Capitol Hill, the desperate to be loved Speaker Paul Ryan has just promised singer Alicia Keys a floor vote on Barack Obama’s mass criminal release legacy legislation, while agreeing to push part of the Congressional Black Caucus’ big government anti-poverty agenda.
While the latter three items are extremely important, the ballooning of the budget deficit should send alarm bells ringing as the national debt hurtles toward the $20 trillion-dollar mark before President Obama leaves office.
The growing budget deficit is attributed to a combination of a going away spending deal negotiated between Obama and out-going Speaker John Boehner that increased spending by $50 billion in FY 2016 and another $30 billion in FY 2017. This spending boost combined with the decision to make a series of tax cuts permanent which at least in the short-term will reduce projected revenues has led to the Congressional Budget Office’s dire prediction.
Now with reports out that the deficit is on the rise again, Democrats are alarmed that the $30 billion in promised new spending might be in jeopardy. But if comments by House Budget Committee Chairman Tom Pryce are to be believed, there is little appetite on either side of the aisle to not increase borrowing by another $30 billion.
Because that is what this new spending is, borrowing with no intent on ever paying it off. The U.S. has been incredibly fortunate that the world economy is nose diving and money is flowing into what is perceived to be the safe haven of U.S. government bonds, having the effect of pushing interest rates down to near record low levels.
If not for these historically low interest rates, interest payments on the debt would be an existential threat to the nation right now. Even with this low interest rate advantage, the CBO projects that the ratio of debt held by the public to America’s Gross Domestic Product (size of economy) will rise to a post-World War II high of 76 percent.
The CBO worries that unless action is taken, “The projected deficits would push debt held by the public up to 86 percent of GDP by the end of the 10-year period, a little more than twice the average over the past five decades.”
But even this stunning prediction understates the real federal government interest rate burden as it ignores the debt owed to ourselves through interest payments to the Social Security Trust Fund and Medicare and other government enterprises. When the publicly held and the government owned debt are combined the debt to GDP ratio tops 100 percent.
Since debt needs to be repaid with interest, the White House Office of Management and Budget estimates that gross payments on debt interest will skyrocket to almost $800 billion by Fiscal Year 2021, almost double the $402 billion paid out this past year.
Why does this matter?
Representative Dave Brat who entered Congress after serving as the Chairman of the Economics Department at Randolph-Macon College explained recently, “In 11 years, all federal revenues will go to unfunded liabilities, mandatory programs and interest on the debt. In 11 years, there won’t be one dollar left for national defense, education, transportation, and running government.”
Whether Brat’s prediction timeline is accurate or not, the problem is simple, the continued piling up of debt now will soon play a large role in subsuming the one-third of the federal budget that is not on auto-pilot.
This is not even considering the devastating economic impact of a nation running a high debt to GDP ratio, where the economy is strangled by the government sucking up a disproportionate amount of investment dollars at the expense of the economy growing private sector. The perverse impact of high debt to GDP ratios is it risks the nation’s GDP growth slowing as the debt continues to increase creating a vicious cycle.
On the world stage, Japan is in just such a death spiral with debt to GDP having exploded from 164 percent in 2007 to 230 percent in 2014 while at the same time the country’s economy continues to suffer from two decades of less than zero nominal growth.
Here at home, the U.S. economy performed worse over the past ten years than at any time since the Great Depression, and at the same time, our nation’s debt to GDP climbed from 63.9 percent to 103 percent.
So while those pursuers of presidential power take their caravans south for the rest of the winter, they should be put on the spot and asked how they would solve the intransigent federal government debt problem.
Because while it may seem boring, debt matters, and if it isn’t tackled by the next President there may be no way out of the economic noose.
The author is president of Americans for Limited Government.