Don’t Fret $40 Tril In Debt? You’ll Regret It

It was, what, just two days ago that Americans found out that they owed $40 trillion? Already they’re moving on. But it doesn’t stop there. The debt is adding up at a furious pace. Those who believe it won’t have an equally huge impact as it inevitably metastasizes are only fooling themselves.

Start with this: $40 trillion is a lot of money.

“For perspective,” notes the centrist Committee for a Responsible Budget, “it took nearly 200 years for America’s gross debt to reach $1 trillion for the first time in 1981. At that time, President Reagan told the nation in a televised address, ‘If we as a nation needed a warning, let that be it.’ Jumping to America’s 250th year, we are spending more than that just on interest payments on our debt.”

Even the Congressional Budget Office warns of trouble ahead.

“Mounting debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook; it could also cause lawmakers to feel constrained in their policy choices,” the CBO wrote earlier this year.

(Actually, lawmakers feeling “constrained in their policy choices” would be a blessing).

But total debt has quadrupled in just the last 20 years. It’s growing much faster than the economy, inflation, wages, or taxes.

So let us be warned once more by our great President Ronald Reagan: We need to sharply reduce government debt, which is already having a negative impact on the economy and America’s future.

One problem this mountain of debt presents, but rarely gets mentioned: hidden inflation.

Sure, right now, consumer prices are moderating despite the $8.5 trillion in new debt added by the Biden administration and his Democrat-controlled Congress in just four years. In July, for instance, news reports noted that inflation “cooled” to just 3.4% at an annual rate. Bravo.

So why worry about a few trillion dollars more each year in added spending and debt?

For one, just servicing our debt costs us over $1 trillion a year, and rising fast. And we’ve already suffered a 21.5% increase in consumer inflation thanks to congressional Democrats’ spending orgy during the Biden-COVID years. Of course, they blame President Donald Trump for their own binge-spending, corruption, and mismanagement.

That’s why government estimates of inflation are grossly understated. Look at the chart below. It shows that federal tax receipts are growing far faster than the consumer price index. Why? The fiscal double-whammy of spending and the debt that goes with it.

Who’s paying those taxes? You are. They are a cost of living, yet aren’t included in inflation data.

“Compounded over three decades, that gap implies a household’s true cost of living has risen on the order of 20 to 25% more than official inflation figures suggest,” wrote economist Karl-Friedrich Israel of the American Institute for Economic Research.

The left loves spending, so it pretends it all can be paid for by taxing “the rich.” But of course, that really means you. Because no amount of taxing the rich can cover those deficits, despite Democrats’ dishonest claims to the contrary.

Rising taxes are permanent inflation that you will never escape — that is, unless and until you force Congress to slow its spending binge. Not likely.

But can’t we muddle through? Nope. A recent study by the Mercatus Center had this alarming finding: “If neither private saving nor foreign capital inflows rise sufficiently, higher government borrowing will raise interest rates and reduce private investment.”

Current savings: Less than $1 trillion a year. Foreign capital inflows: Less than $1 trillion.

If you’ve been paying attention, you would know that interest rates on bellwether 30-year government bonds — used to set interest rates across the entire economy — hit 5.216% this month, the highest level since 2001. It’s no accident. Markets respond to growing threats to financial stability, which is exactly what out-of-control spending is.

The CBO agrees that those trillions in added spending will have a huge impact on private investment and thus economic growth. For every dollar in added spending, the CBO estimates private investment will drop by between 15 and 50 cents, or an average of 33 cents.

In short, the deficit tax on investment is steep: roughly 33%. Over time, that affects everything. Jobs. Incomes. Prices. Innovation. Retirements. It also means your standard of living declines with each dollar added to our debt. Deficit spending has no upside.

Ending the debt threat begins and ends with you realizing that this is your problem, and also your kids’ and grandkids’ problems, unless you act to end it. That means spending less by fixing Social Security and Medicare, and curbing other insane runaway spending — including literally trillions of dollars in fraudulent and improper federal payments.

— Written by the I&I Editorial Board

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