Roth: If Biden wants to solve a debt crisis, he should pay down the national debt
Faced with economic hardship, including the highest inflation in 40 years, questionable foreign policy decisions and a general feeling that we are no better off than we have been in recent years, the Biden administration is seeking find a way to get approval. The most recent desperate effort is for the cancellation of student loans.
Americans currently carry around $1.75 trillion in student loan debt, an issue I addressed in a recent article for TheBlaze. Instead of trying to buy votes by picking winners and losers via student debt cancellation, the Biden administration and Congress should tackle the crisis that matters to all Americans: the national debt. of $30.4 trillion.
Progressives boasted that because the government could print its own money, it could spend virtually unlimited amounts without consequence (an argument that makes almost as much sense as saying that since you have a checkbook, you can write an unlimited number of checks of any amount). Reaching historic inflation levels concretely refuted this notion while proving what everyone knew: out of control spending causes inflation. Unfortunately, this has imposed on Americans not only higher costs for goods and services, but also a huge national debt burden.
To put the federal government’s out-of-control spending into perspective, the US population grew by about 14% from 2002 to 2019, but federal government spending increased by 120% during that time. With massive COVID “relief” spending, 2002 to 2021 saw a 339% increase in spending! Clearly, these massive expenditures exceeded tax revenues, creating multi-trillion dollar deficits over the past two years.
The financing of these deficits has, in turn, increased the overall debt burden. In fiscal year 2017, the US national debt was just over $20 trillion, which means we’ve had 50% growth in debt over the past five years. only !
This means that as of fiscal year 2021, based on CBO estimates, US taxpayers have spent $413 billion (after excluding government transfers) of their money in interest payments to pay off this debt. That’s a lot of money that’s going to pay not for new things, but rather to fund things we’ve already bought.
This burden is expected to increase. CBO and White House estimates called for the interest burden to double that amount by 2030, but their projections were based on a 10-year Treasury yield that had risen slowly, only approaching 3% at the end of this decade. The 10-year yield at the time of writing hovers around 3%. Now, this won’t affect the cost of debt all at once; the current average maturity of US Treasury debt is between five and six years. But it does mean that we will see the costs increase gradually and more of our money will be used to pay the interest on the debt.
With so much spending on interest payments, it crowds out other spending, forces individuals to pay more taxes, or both. It also doesn’t leave much room for “emergency” funding, not seeing the implications of printing “fictitious money” as we have done in recent years.
While the Biden administration recently said it plans to pay down the national debt in the current quarter, given a projected fiscal year deficit of $1.4 trillion (via OMB Historical Tables of the White House, an amount greater than the pre-COVID deficits) that will have to be financed by debt, this statement seems like smoke and mirrors at best.
If Biden officials want to solve a real debt crisis that is impacting American taxpayers across the board, they need to work with Congress to make sure they stop government overspending, generate a surplus, and start paying back materially the heavy indebtedness that we carry (about 130% of the GDP, but a little more than 100% if we only take into account the debt held by the public). Although some people will say that financing this debt was cheap and therefore a good deal, I will come back to basic economics. While it is true that while debt provides a return on investment on an investment it is very worthwhile, debt for spending is never good business. With a total US national debt of 1.3 times GDP, that’s even less of a “deal.”
Any federal debt settlement should not be a gift to some people at the expense of others. The focus should be on what affects us all, which is uncontrollable government spending.