Federal Debt and Deficit Crises
Our national debt represents the amount of money our nation has borrowed and currently owes to creditors. This is a growing amount that’s already almost 30 trillion dollars. Our annual budget deficit represents the amount of money that we spend each year in excess of how much money we earn in tax revenues. Simply, if we spend more money than we earn during a given year, we have a budget deficit and must borrow money to make up the difference. The amount that we borrow each year adds to our national debt. For example, for fiscal year 2020, we earned approximately 3.4 trillion dollars in tax revenues and spent approximately 6.6 trillion dollars. This left us with a federal budget deficit of 3.2 trillion dollars, which means that we added 3.2 trillion dollars onto our national debt that year.
We borrow mostly ourselves. Out of our almost 30 trillion-dollar national debt, we’ve borrowed around 21 or 22 trillion dollars from US businesses and individuals, as well as from our various federal, state, and local governments. On top of the amount that we’ve borrowed from ourselves, we’ve borrowed around 7 or 8 trillion dollars from foreign governments. Our largest foreign creditors are Japan and China; we owe them just over one trillion dollars each.
In addition to the fact that we must ultimately pay this money back, until we do pay it back, we’re forced to pay interest on the money we’ve borrowed. Since our debt is so high as compared to our annual tax revenues, even at a low interest rate, the amount of interest we’re paying on our loans is huge. For some perspective, in 2020, we paid approximately 380 billion dollars in interest on our loan. Again, this is just interest, which means that the 380-billion-dollar payment did not pay down our national debt by even one dollar. And since we only earned around 3.4 trillion dollars in tax revenues in 2020, 380 billion dollars represented over 11% of all the money we made that year. And, it’s worth mentioning for more perspective that the amount we paid in just interest on our national debt in 2020 would have fully funded the entire military budgets for India, Russia, the UK, Saudi Arabia, Germany, France, and Australia… combined! In other words, we spent more in interest on our national debt, than the combined military spending of all those nations.
Our annual budget deficit fuels the continued growth of our nation’s debt, and, of course, the increasing interest payments. Our leaders don’t seem to have any idea how to spend less than we earn, or how to invest our spending in the types of things that will eventually enable us to earn more than we spend. Until our political leadership figures out how to build annual budget surpluses, our national debt will continue to increase. Eventually, a large percentage of our individual income will be spent each year on interest payments, with no end in sight.
Some politicians argue that our deficit spending is not a problem because we’re investing in our future. Yes, investment in our future is necessary. But, this argument is only valid if the money we spend is actually being spent on real investments for the future and if those investments ultimately bring us to a place where we’re earning more money than we’re spending. If not, if spending continues to yield annual budget deficits, for decades, then our spending is irresponsible, and our money is being mismanaged. During the past fifty years, we’ve only had budget surpluses four times.
We owe most of this money to ourselves. We would be defaulting on things like our social security payments. Doing so would mean that many people in the US would not have money for retirement, and government organizations that have made loans to us would not be able to pay their employees.
Doing that would not solve the problem since foreign nations only own 25% percent or so of our total debt. Even if we defaulted on their loans to us, we would still have a growing debt of over 23 trillion dollars. Worse yet, if we defaulted on our debts to foreign nations, we would lose our credibility on the world stage, and both people and nations would stop lending us money; or they would only agree to lend us money at much higher interest rates. Higher interest rates mean higher interest payments. And, since we have not had a budget surplus in over 20 years, and only four surpluses in the past 50 years, being cut off from ongoing loans would be crippling to our nation.
Surprisingly, we have many political leaders who remain unconcerned about the size of our annual budget deficits and growing national debt. It’s possible that many of our political leaders don’t even understand our financial crisis. It’s also possible that they do understand our financial crisis but refuse to face it because doing so would hurt their ability to get re-elected. After all, Democrats tend reject leaders who cut spending and Republicans tend to reject leaders who increase taxes; it seems that we need to do both. That said, another possibility is that our leaders do understand the size of the problem but have no idea how to solve it. To appropriately face this emerging catastrophe, we need political leaders who do understand the problem, do not fear facing the problem, and have an implementable plan to solve the problem. Let’s find those people and put them in office.