This blog’s previous post on the election mentioned the bipartisan silence regarding the mountain of US government debt. The stock of debt, currently about $35 trillion, or $100,000 per person, raises catastrophic possibilities.
The problem most easily seen is the burden on government finances. The numbers are public. In FY 2024, US Government outlays were $6.75 Trillion, vs $4.92 Trillion in revenues, for a deficit of $1.83 Trillion. US Government interest expense as of September 2024 is about $1.13 Trillion. Which is to say, a sixth of total outlays are financed by debt, mostly in the sale of US Treasury securities, and the majority of our deficit represent interest on that debt.
An old saw of Economics 101, re-packaged today as “Modern Monetary Theory,” says that the amount of debt issued in one’s own currency do not matter, as the government can always float more debt to pay off interest. That’s what we’ve been doing, to one extent or another, for decades. Will people keep buying US Treasury securities? Probably, but at what interest rates? As and if people lose confidence in US Government management of its finances, that rate will rise. Interest expenditure will jump – there will be more stock of debt, and at higher rates – and deficits will swell all the faster. This increase, in turn, should raise rates further, in a compounding vicious cycle. At some point, the amount of money devoted to government finances could well turn into a lethal drag on the economy at large.
This possibility points toward a more generic, really big risk of excessive debt: loss of confidence, not just in government debt management, but in the US dollar, the US government, and the US economy as a whole. This is not only a matter of the dollars Americans spend, invest, buy, and start businesses with. First off, foreigners buy a lot of US Treasuries, and use the dollar for their payments, even with other foreigners. Without that global confidence in the dollar, as a stable medium of exchange and store of wealth, two things happen. First, less buying of US debt from abroad exacerbates the cost, and the vicious cycle, of government deficits. Second, foreigners paying and investing in US dollars have an interest in the well being of the US economy. As that use diminishes, so does that interest. Treasury securities incur higher rates to get buyers, and the dollar itself loses standing. With that loss also goes much of the amity toward all things American, which deepens the cost and also brings intangible costs to America. Third, the ability of the US government to impose our financial sanctions on bad guys starts to dissipate – and those bad guys are already looking for ways to break the power of the dollar. To the extent we mismanage our own debt, we also reduce our influence abroad, and even fuel adversaries’ efforts to curb this power.
No such cascade of vicious cycles has occurred, but another old quote comes to mind: “How did I go broke? Slowly at first, then all of a sudden.” America’s financial position is creaking, a little more loudly with each crisis and each funding vote in Congress. Confidence is beginning to creak too, however muted it sounds to our ears today. But once the wrong line gets crossed, confidence can evaporate so suddenly that it will seem never to have been real.
It is urgent for America to shore up our financial house, to put questions of confidence to bed as soon as possible, before some trigger event turns our detached worries to panic. As and if we address the mounting debt, and take on the causes in a serious manner, we show ourselves as a free People using our freedom sensibly and prudently. The idea that freedom only leads to dissipation, and that it is thereby unsustainable, gets debunked. The American experiment moves on to its next test. If we continue to ignore the dangers, we risk our government finances, our economic well-being, and a major source of international influence. Above all we risk our case that free people can discipline themselves, to take measures that show government in the name of rights to be sustainable. We make our founding look like a fantasy.
Our zero-sum, bipolar politics makes it nearly impossible to address this problem. When two sides will do anything to denigrate the other, and nothing to risk giving the other a weapon, neither will espouse any idea meant to keep government responsible. Only if somehow Americans take allegiance to something higher than partisan sides can we see the disputes as, at best, disagreements over means to govern a free society. Only when we put politics in their place as means will we even be able to discuss matters of the nation’s existential ends.
Common Conviction 