The current US debt is $28.2 trillion. When numbers get this large, they can be hard to comprehend. We all conceptually understand what a “trillion” means when we see it on a page, but what does it mean in units that we work with on a regular basis? To put the size of a trillion in an everyday context, 28 trillion seconds equals 887,761.5 years. The distance from the Earth to the Sun is 490 billion feet. Keep in mind, there are 1,000 billion in one trillion, let alone 28. The current debt per US citizen is $85k and the debt per US taxpayer is $224k. If every American were asked to pay off their portion of the debt immediately, it shouldn’t be a surprise that the majority couldn’t take this hit out of pocket.
With the onset of COVID this past year, the US government needed to step up to support its people. The US debt levels were already at record highs and with a wave of people losing their jobs practically overnight, many people needed help. I think most would still challenge if the government supported the correct people and acted quickly enough to support the people that needed help, but that’s a conversation for another day. The result of COVID is the US debt grew larger and the Biden administration is adding to that number. Part of it is making up for what the Trump administration left on the table for COVID relief and the other part is a $2+ trillion infrastructure bill.
It is important to call out there is a difference between debt and a deficit. A deficit is a difference between incoming revenue and outgoing expenses. Just looking at the total debt number in a vacuum doesn’t do much. Would we really care if the US had a national debt of $28.2 trillion, but had revenues, aka taxes, of $100 trillion to cover the debt? Spoiler, we don’t have the tax income to fully cover our debt.
As the US economy and country has grown, so has the borrowing. It is remarkably stable growth when you take a look at the US economy since the Great Depression, even though there were economic booms, wars, recessions, and other historically important events all the while.
The most noticeable thing about this graph is the cross over signaling we now borrow more than our economy is worth. It’s hard to see, but the debt to GDP ratio was also over 100% during the 1940’s due to WW2. Below is a better graphical representation of the overall debt to GDP ratio between now and 1929.
I really like this graph to visualize how over time we’ve seen the borrowing rise in fall compared to GDP. We have really since a large jump in the amount of borrowing compared to the overall value of the economy since the financial crisis in the late 2000’s. These graphs are only taking into account the total debt, which is the money the US has borrowed, but we haven’t looked at the deficit or surplus yet.
When talking about deficits and surpluses, it’s hard not to be reminded of the scene in The Office where Oscar has to explain to Michael what a surplus is by giving an analogy of a lemonade stand. The last time the US government ran a surplus (where the expenses were less than the tax revenue the government took in) was during Clinton’s administration in the late 90’s. In fact, over the recent history of the American government, the US usually ends up in the red for the year spending more than they can bring in via taxes.
Usually, when a value is above 0, that is a good thing, but in this case the greater the value the more money greater the gap between the expenses of the US government compared to the taxes which are generated. Once again, we can see a rise in the deficit due to COVID. The government had a large bill they needed to pay for that they did not expect. These unexpected events happen in history and the US is fortunate that they’ve got a strong enough credit reputation that people are willing to lend them money now with the anticipation of repayment with interest in the future.
Biden has proposed a new infrastructure plan that will add a few more trillions onto the expense line. This bill hasn’t been finalized yet and a lot can change as the bill is brought to Congress. I think the most important thing should be making sure that these expenditures are able to really set up the US for future growth. The infrastructure of the US is lacking and badly needs to be rebuilt, but if this amount of money is to be spent, I would want to try to make sure it is optimized for setting up future growth in the country. Yes, US highways and bridges need to be restored, but how much will that help future growth? I would really try to focus on areas like clean energy and transportation as catalysts for future growth. This is an opportunity for laying the groundwork for making the US the number one player in the clean energy space. If the money is going to be spent, let’s try to make sure that we are really going to see legitimate returns on the investments, not it being stuffed into the pockets of government contractors.
The future growth of America is what allows the government to borrow at the volume it does. Once the chance of growth goes away, the US won’t have access to the capital it currently does. The US also has the benefit of having the dollar be the world’s reserve currency, which gives the US even more financial credibility due to the stability of the financial system being backed by the US government. This is why I think any incremental spending by the US government should be towards items that will help propel the growth of the country in the future.
At some point, we will need to pay back the money that we borrowed. I personally don’t think that the government needs to run like a business and having a profit means success. I think it’s fair for the government to run at a deficit to ensure the future growth of the country. If the government is able to shoulder the expense for things like higher quality education, then the country would hopefully see the tangible returns of having well-educated citizens.
Having a real concern over the amount the US is borrowing and the current deficit isn’t a novel thought or idea. People dedicate their lives to trying to study this issue and the best way to keep these factors in check. It’s easy enough to say that the government should increase their revenue (the money they bring in from taxes) and decrease the amount of money they spend. I wish it could be as easy as running a lemonade stand from The Office example, but it isn’t. Promises have been made that need to be fulfilled.
I’m just curious to know at what point is the borrowing and spending too much? There has to be a point, but I don’t know what the catalyst would be to say that enough is enough. As an individual, we’ve got financial metrics that have a real impact on our lives. A credit score under a certain amount or a debt to income ratio above a certain threshold severely inhibits our ability to borrow. It can happen, just at rates that can be borderline criminal. The US government does have a credit rating, but there isn’t the same accountability to the individuals in Congress borrowing on behalf of the government compared to the individual trying to buy their first home.
I think the metric that makes me the most worried is the average debt per citizen and even worse taxpayer. Thinking that I personally owe $224k on behalf of the US government doesn’t feel right to me. Of course, it should be stated that the US government provides more now than ever before for its citizens, but I feel like that number should be less. I took a look at what this value has been since the Great Depression.
This is an interesting view, but this doesn’t take into account an important factor, inflation. We can see that the debt per citizen was next to nothing back in the 1930’s, but what would that look like in terms of 2021 value?
It turns out it is still pretty low. In the 1930’s, the debt to US citizens was somewhere in the low to mid thousands of dollars adjusted for inflation until spending ramped up for WW2. For me personally, I would feel more at ease if we could get the value of debt to citizen ratio somewhere between the $25,000 to $50,000 mark over the next 10 years or so. I would like to see the levels drop back to where we were before the financial crisis. Keep in mind, this is the growing debt that the US has had to borrow, not the expenses of citizens. That could be a conversation for another time!
Peace and Love.
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