Issue No5: America’s Inquisitive Man
Why Have US Budget Deficits Evolved From A Relatively Benign And Recent Budget Anomaly To An Intentionally Unaccounted For Funding Necessity?
An 1814 English fable titled “The Inquisitive Man’ tells the story of man who goes to a museum and notices many tiny things but fails to notice an elephant. Hence the metaphor “the elephant in the room” was born. It applies to huge subjects, questions or controversial issues that everyone is aware of, but no one wants to address. Rather, it’s better left ignored.
Anyone interested enough to open this article doesn’t need to be told that the meteoric growth in America’s federal debt is deeply troubling. On the date I published this article, our US national debt was $34 trillion.
Before I get started, here are 3 important definitions:
1.Federal Debt — The amount of money the federal government has borrowed to cover the outstanding balance of expenses they can’t pay that were incurred over time.
2.Budget Deficit — Occurs when federal government spending exceeds its revenues.
3.Net Interest — Is the interest paid on our federal debt and appears as an outlay in the budget. Note: It’s the fastest growing budget item.
According to Fortune magazine, the national debt is currently rising at a rate of $1 trillion every 100 days.
US federal debt as a percentage of GDP, a key historic metric of a country’s financial health, was 34% (1980), 58% (2000) and 124% today. The higher the ratio, the increased stress on a governments ability to fund important services.
Let’s be clear, managing interest debt spending is a US Treasury obligation that provides no human-based benefit. Rather, it’s a self-inflicted result caused by irresponsible political behavior that only occurs at the Federal level. States operate with required balanced budgets that don’t allow deficit spending.
How many times have we heard do-nothing politicians make emotional and largely hollow speechs about the consequences of what “we’re doing to future generations” by not taking action about the debt now? A lot.
What they don’t mention is the snowball effect of required net interest spending caused by the massive debt load and its disastrous impact on budgeting now. Read on.
This chart illustrates the alarming acceleration of federal debt (red) from roughly $5 trillion early in George W. Bush’s presidency to a nearly 7x increase in 2024.
Note: This chart only accounts for Biden’s first full year in office, so use your imagination to continue the red line down from $30 to $34 trillion.
Check out another seriously disturbing trend. The orange area on top of my previous chart is our federal budget deficit. Our elected officials unhinged annual spending habit combined with the financial burden of not addressing our debt crisis is at a critical tipping point. Both the size and rapid growth of debt-related interest spending is overwhelming the Federal government’s ability to fund discretionary projects, which is requiring them to resort to running large [and growing] budget deficits out of financial necessity.
Politicians are collectively their own worst enemy.
They won’t take the time to properly educate voters on the both the need and urgency to make the much needed adjustments to entitlement programs (i.e. Social Security, Medicare, etc) while Net Interest spending is testing their limits. Their answer: perpetual budget deficits.
According to the US Treasury, our current debt interest spending is closing in on $800 billion annually. This chart is the White House’s projected 2024/2025 (the Federal government’s 12 month fiscal calendar begins on October 1) proposed budget. Those red bars are debt-related interest expenses.
The snowball-like 10 year acceleration from roughly $220 billion to $800 billion today is the Elephant in the Room issue.
The snowball analogy is a perfect description to explain the dynamic of how this budget item works and why our politicians are acquiescent about the hard reality of needing perpetual budget deficits. Both parties lack the political fortitude to be truthful with the American people.
This chart from the Congressional Budget Office (CBO) summarizes Biden’s proposed requests and their impact. He wants to spend $6.9 trillion against projected revenue of $5.1 trillion resulting in $1.8 trillion deficit, which equals 26% of his total proposed budget.
Politicians divert attention away from budget-crushing Net Interest spending by instead drawing you to focus on an apparently significant Deficit Reduction number. This disingenuous slight-of-hand communication technique relies on 1.) the public’s ignorance the current damage Net Interest spending is inflicting on our non-discretionary budgets and 2.) the publics lack of math skills. For instance, a $2.9 trillion reduction in deficit spending over 10 years amounts to $290 billion per year. For context, the proposed single year budget deficit presented above is $1.8 trillion. $290 billion represents just 16% of the proposed deficit number. Said more succinctly, it’s a drop in the bucket.
But, they succeeded in not having to deal with the Elephant in the Room — runaway required annual interest spending.
Here’s a more detailed breakdown of the proposed White House spending by major items. Note the comparative proposed spending between Net Interest ($789 billion) to Medicare ($842 billion). Non-Defense Discretionary ($1,015 billion) items represent the only truly unrestricted spending, and it only represents 15% of the total budget. For discussion’s sake, 85% is locked in.
Net Interest spending will likely surpass Discretionary spending within only a few more budget cycles.
Let’s look at how the proposed 2024/2025 budget compares to the current 2023/2024 budget. Note that Net Interest spending is roughly $130 billion higher in the proposed budget versus just last year’s budget. Remember the snowball analogy. In a single budget cycle Net Interest spending increased 20%!
Check out below how debt-related interest spending dwarfs other budgeted services in our current budget.
If these numbers are making you ill, this should finish you off. The chart below presents the CBO’s 2019 pre-covid budget which ran from October 1, 2018 to September 30, 2019 totaled $4.4 trillion. The latest proposed budget of $6.9 trillion represents a whopping 57% increase in the size of government spending in just 5 years! And note that Net Interest spending increased from $400 billion to nearly $800 billion during that same period.
According to CNBC, the paid federal debt bill for February 2024 was $76 billion, a staggering 67% increase versus the prior year.
For most of the last 30 years, ever declining rates made taking on more debt a relatively painless affair. That’s changed. Significantly higher interest rates are further pressuring federal finances in the near term.
Jamie Dimon, the highly respected CEO of JP Morgan Chase says Washington faces a global market ‘rebellion’ over record U.S. debt: ‘It is a cliff…we’re going 60 mph towards it’. Many other business and academic heavyweights agree.
Our current federal government budgeting modus operandi is taking us further down a very, very dark road. We need to resurrect a similar Simpson/Bowles bipartisan committee that was created by President Obama in 2010. However, this time around the very challenging solutions that were presented must be embraced and executed. I fear it’s America’s only solution. Feel free to forward this article others.
Finally, one of my favorite websites is US Debt Clock.org. It provides real-time metrics on many interesting pieces of important information with credible sources provided and I highly recommend it. Most of it comes straight from various federal government agencies.
Thanks for reading my article. If you enjoyed it, please click on the clapping hands below. If you’d like to sign up to become a regular member, it will cost you only $5 per month and provides unlimited access to all the content on Medium. Here’s a link for you to sign up: https://medium.com/@ric62551/membership
