Except for 1835, the U.S. has always had debt. Not necessarily bad, a national debt can come in handy. You sell bonds, borrow the cash, use it to grow your GDP. Then, by the time you have to pay it back, you are richer. And by paying it back, you get a triple A credit rating so you can borrow more.
The problems start when you borrow too much.
How Much is Too Much?
Just like you can decide if your home loan is excessive by comparing your mortgage to your income, we can compare the national debt to the GDP. Below, comparing the debt held by the public to GDP, the ratio is 75%. And if the current trajectory of spending and taxes continues, then we can expect the ratio to climb to 86% in 2026 and 141% in 2046.
So, what can we do?
A nonpartisan debt reduction think tank, the Concord Coalition, suggests the candidates need to recognize where the debt/GDP ratio is going and then focus on big spending categories. That takes us to Social Security and Medicare.
Since 2010, shortfalls have been a Social Security problem. Called pay-as-you-go, the amount collected through the payroll tax has not covered all that has gone out. As a result, the trust fund back-up money is shrinking and will be gone by 2034.
Similarly, our healthcare program for the aged, Medicare, has money problems. With 10,000 baby boomers celebrating a 65th birthday every day from 2010 to 2019, Medicare has little reason to celebrate. By 2028, its trust fund will run dry. Then, more government general funding will be needed.
Our Bottom Line: Ignoring the Debt Problem
I searched for the federal debt in the first presidential debate transcript and saw it generally mentioned 10 times with no discussion. Also sidestepping the issue, the Trump and Clinton fiscal policy proposals do nothing to reverse the trend. Below you can see the debt continues to soar:
As you know, accurate debt projections are tough to make. It is impossible to predict related variables that include GDP growth, job creation, business formation, technological innovation…the list is endless.
We can be sure though that the candidates will not focus on federal debt reduction.
My sources and more: For the facts and analysis, I recommend this Congressional Budget Office (CBO) report. Combined with election related debt discussion from the Concord Coalition and the Committee for a Responsible Budget, the budget problems become clear and convincing. Finally, you might find it interesting to look at this OECD graph for debt/GDP ratios from other countries and the transcript of the first Clinton/Trump debate. And, my baby boomer stat was from Pew Research.
