U.S Debt: Decades in the Making

by | Mar 8, 2024 | Client Communication, Our Insights

Time to talk about the 800-pound gorilla. Not the powerful primates that are the subject of a number of Hollywood movies. I’m talking about the Federal debt, the massive amount our federal government owes.
The Federal debt is the total amount owed resulting from annual deficits/surpluses. Since the federal government regularly spends more than it takes in, the U.S. generally runs an annual deficit. This is not the problem of a single administration or party. This is an ongoing dilemma that has accumulated over decades and multiple administrations. Deficit spending has its merits if contained for a short period and/or provides temporary solutions for situations such as war, economic downturns, or sudden unforeseen events like COVID, but perpetual significant deficit spending can be problematic.
Deficit spending is about 100 years old with the conception of Keynesian economics, the foundation of modern economic practice. In short, John Maynard Keynes noted that deficit spending is necessary to battle economic weakness. Effectively, governmental spending can augment lost consumerism and business investment to lessen an economic downturn as well as prime forward consumer and business spending. More current Federal Reserve chairpersons extrapolated deficit spending to events that could negatively impact the macroeconomic environment, such as a pandemic, credit crisis, or terrorist attack.

 

The part often ignored is that deficits need to be paid back. In fact, Keynesian economics recognizes deficit spending needs to be recouped; otherwise, perpetual deficit spending will ultimately become problematic. Fast forward to current times with a $34 Trillion debt1, an economic albatross via high-interest payments, and the eventual IOU burdened on future generations.

 

Politicians like to point out their opponents’ deficit demands yet eschew their own. Interestingly, spending, on one’s own initiatives is acceptable, but other initiatives are not. The reality is both political sides have contributed to this national financial situation. The solution rests in either raising taxes, reducing spending or both. It will take a long-term committed strategy without allowing pet projects, political favors, or near-term frivolous undertakings. Maybe future presidents and congresspersons should be required to attend a Spenders Anonymous meeting with a 12-step process to overcome their addiction.

 

In the end, the debt can only be paid by those with the ability to pay it back. Instead of saddling future generations with a $250k birth tax, why not help them put their best foot forward and minimize their financial burden for maximum return on life

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