The Real Story Behind America's New $20 Trillion Debt

Authored by Simon Black via SovereignMan.com,

Late yesterday afternoon the federal government of the United States announced that the national debt had finally breached the inevitable $20 trillion mark.

This was a long time coming. It should have happened back in March, except that a new debt ceiling was put in place, freezing the national debt.

For the last six months it was essentially illegal for the government to increase the debt.

This is pretty brutal for Uncle Sam. The US government hasn’t run a budget surplus in two decades; they depend on debt in order to keep everything running.

And without the ability to ‘officially’ borrow money, they’ve basically spent the last six months ‘unofficially’ borrowing money by plundering federal pension funds and resorting to what the Treasury Department itself calls “extraordinary measures” to keep the government running.

Late last week the debt ceiling crisis came to a temporary armistice as the government agreed once again to temporarily suspend the debt limit.

Overnight, the national debt soared hundreds of billions of dollars as months of ‘unofficial’ borrowing made its way on to the official books.

The national debt is now $20.1 trillion. That’s larger than the size of the entire US economy.

You’d think this would be front page news with warnings being shouted from the rooftops of America.

Yet curiously the story has scarcely been covered.

Today’s front page of the New York Times tells us about Hurricane Irma, North Korea, and alcoholism in Iran.

Even the Wall Street Journal’s front page has zero mention of this story.

In fairness, the number itself is irrelevant. $20 trillion is merely a big, round, psychologically significant number… but in reality no more important than $19.999 trillion.

The real story isn’t the number or the size of the debt itself. It’s the trend. And it’s not good.

Year after year after year, the US government spends far more money than it collects in tax revenue.

According to the Treasury Department’s own figures, the government’s budget deficit for the first 10 months of this fiscal year (i.e. October 2016 through July 2017) was $566 billion.

That’s larger than the entire GDP of Argentina.

Since the government has to borrow the difference, all of this overspending ultimately translates into a higher national debt.

Make no mistake, debt is an absolute killer.

History is full of examples of once-dominant civilizations crumbling under the weight of their rapidly-expanding debt, from the Ottoman Empire to the French monarchy in the 1700s.

Or as former US Treasury Secretary Larry Summers used to quip, “How long can the world’s biggest borrower remain the world’s biggest power?”

It’s hard to project strength around the world when you constantly have to borrow money from the Chinese… or have your central bank conjure paper money out of thin air.

And yet tackling the debt has become nearly an impossibility.

Just look at the top four line items in the US government’s budget: Social Security, Medicare, Military, and, sadly, interest on the debt.

Those four line items alone account for nearly NINETY PERCENT of all US government spending.

Cutting Social Security or Medicare entitlements is political suicide.

Not top mention, both of those programs are actually EXPANDING as 10,000 Baby Boomers join the ranks of Social Security recipients every single day.

Then there’s military spending, which hardly seems likely to fall significantly in an age of constant threats and warfare.

The current White House proposal, in fact, is a 10% increase in military spending for the next fiscal year.

And last there’s interest on the debt, which absolutely cannot be cut without risking the most severe global financial meltdown ever seen in modern history.

So that’s basically 90% of the federal budget that’s here to stay… meaning there’s almost no chance they’re going to be able to reduce the debt by cutting spending.

But perhaps it’s possible they can slash the national debt by growing tax revenue?

Possible. But unlikely.

Since the end of World War II, the US governments’ overall tax revenue has been VERY steady at roughly 17% of GDP.

You could think of this as the federal government’s ‘slice’ of the economic pie.

Tax rates go up and down. Presidents come and go. But the government’s slice of the pie almost always remains the same 17% of GDP, with very small variations.

With data this strong, it seems rather obvious that the solution is to allow the economy to grow unrestrained.

If the economy grows rapidly, tax revenue will increase. And the national debt, at least as a percentage of GDP, will start to fall.

Here’s the problem: the national debt is growing MUCH faster than the US economy. In Fiscal Year 2016, for example, the debt grew by 7.84%.

Yet even when including the ‘benefits’ of inflation, the US economy only grew by 2.4% over the same period.

In other words, the debt is growing over THREE TIMES FASTER than the economy. This is the opposite of what needs to be happening.

What’s even more disturbing is that this pedestrian economic growth is happening at a time of record low interest rates.

Economists tell us that low interest rates are supposed to jumpstart GDP growth. But that’s not happening.

If GDP growth is this low now, what will happen if they continue to raise rates?

(And by the way, raising interest rates also has the side effect of increasing the government’s interest expense, essentially accelerating the debt problem.)

Look– It’s great to be optimistic and hope for the best. But this problem isn’t going away, and it would be ludicrous to continue believing this massive debt is consequence-free.

There’s no reason to panic or be alarmist.

But it’s clearly time for rational people to consider this obvious data… and start thinking about a Plan B.

Do you have a Plan B?

Comments

Escrava Isaura Looney Tue, 09/12/2017 - 16:16 Permalink

US Debt breakdown as of December 31, 2016: Social Security (Social Security Trust Fund and Federal Disability Insurance Trust Fund) - $2.801 trillion Office of Personnel Management Retirement - $888 billion Military Retirement Fund - $670 billion   Medicare (Federal Hospital Insurance Trust Fund, Federal Supplementary Medical Insurance Trust Fund) - $294 billion All other retirement funds - $304 billion Cash on hand to fund federal government operations  - $580 billion. (Source: "Treasury Bulletin, Monthly Treasury Statement, Table 6. Schedule D-Investments of Federal Government Accounts in Federal Securities, U.S. Department of the Treasury, December 2016.)   Foreign - $6.004 trillion Federal Reserve - $2.463 trillion Mutual funds - $1.671 trillion   State and local government, including their pension funds - $905 billion Private pension funds - $553 billion Banks - $663 billion   Insurance companies - $347 billion U.S. savings bonds - $166 billion Other (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors) - $1.662 trillion. (Sources: “Factors Affecting Reserve Balance,” Federal Reserve, January 18, 2017. “Treasury Bulletin, Table OFS-2, Ownership of Federal Securities", U.S. Department of the Treasury, December 2016.) This debt is not only in Treasury bills, notes and bonds but also Treasury Inflation Protected Securities and special state and local government series securities. As you can see, if you add up the debt held by Social Security and all the retirement and pension funds, nearly half of the U.S. Treasury debt is held in trust for your retirement. If the United States defaults on its debt, foreign investors would be angry, but current and future retirees would be hurt the most. In June 2017, China owned $1.146 trillion, making it the largest foreign holder of U.S. debt. Japan owns $1.091 trillion. Both Japan and China want to keep the value of the dollar higher than the value of their currencies. That helps keep their exports affordable for the United States, which helps their economies grow. That's why, despite China's occasional threats to sell its holdings, both countries are happy to be America's biggest foreign bankers. China replaced the United Kingdom as the second largest foreign holder on May 31, 2007. That's when it increased its holdings to $699 billion, outpacing the United Kingdom's $640 billion. Ireland is third, holding $302 billion. Brazil is the fourth largest holder at $270 billion.  The Cayman Islands is fourth, at $254 billion. The Bureau of International Settlements believes it is a front for sovereign wealth funds and hedge funds whose owners don't want to reveal their positions. So are Luxembourg ($212 billion) and Belgium ($98 billion).  https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124  
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“Wealth is a flow. Spent it must be to produce future wealth.” — Frederick Soddy, 1921. https://www.amazon.com/Cartesian-Economics-Physical-Stewardship-Classics/dp/1616407395/ref=pd_ybh_a_47?_encoding=UTF8&psc=1&refRID=MQ602PFFHPJKAA14P8BM    

In reply to by Looney

sleigher Looney Tue, 09/12/2017 - 16:32 Permalink

"BTW… As soon as the National Debt had reached the $20 Trillion mark, the LED Sign in NY City keeping track of it disappeared. “They” say it was removed to be upgraded.   ;-) Looney" In reality this is more likely the point in time described by Frank Zappa. “The illusion of freedom will continue as long as it's profitable to continue the illusion. At the point where the illusion becomes too expensive to maintain, they will just take down the scenery, they will pull back the curtains, they will move the tables and chairs out of the way and you will see the brick wall at the back of the theater.”

In reply to by Looney

rubiconsolutions Ben A Drill Tue, 09/12/2017 - 16:40 Permalink

"The US government hasn’t run a budget surplus in two decades...." This article suggests that there was a budget surplus under Clinton and there wasn't. It's a myth that people have bought into. The deficit increased every year under Clinton and even the likes of CNN said this. All one has to do is Google "Clinton budget surplus myth" and get the facts. There hasn't been a budget surplus in this country in decades. Check this out - http://ireport.cnn.com/docs/DOC-837799

In reply to by Ben A Drill

Escrava Isaura rubiconsolutions Tue, 09/12/2017 - 16:58 Permalink

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You’re correct. Bill Clinton never balanced the budget but, Clinton got close of balancing. And you can check it at the Treasury website that I attached below. https://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm  

In reply to by rubiconsolutions

Duc888 Tue, 09/12/2017 - 15:55 Permalink

  "The national debt is now $20.1 trillion. That’s larger than the size of the entire US economy." Add a few more trillion that has been siphoned off for Black projects for 30+ years.

Escrava Isaura Duc888 Tue, 09/12/2017 - 17:05 Permalink

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Ohh, boy. Here we go again with the exaggeration —fake news. US private debt. Twice larger than the government. 43,800 trillion dollars. https://fred.stlouisfed.org/series/TCMDODNS Now, US private and public debt related to GDP: http://www.debtdeflation.com/blogs/wp-content/uploads/2012/01/010212_2140_TheDebtwatc1.png  Government Debt Isn't the Problem—Private Debt Is https://www.theatlantic.com/business/archive/2014/09/government-debt-isnt-the-problemprivate-debt-is/379865/  

In reply to by Duc888

El Vaquero NickyGall Tue, 09/12/2017 - 16:03 Permalink

You mean Reagan?  The doubling of the debt, on average, every 8 years is built into the system.  The problem isn't who is president, the problem is the monetary system itself.  If Trump is a 2 term president, and the USD doesn't take a shit before the end of his presidency, the national debt will be around $40 trillion.  

In reply to by NickyGall

Stan Smith Tue, 09/12/2017 - 16:02 Permalink

It's funny how folks, especially on the left preach "sustainability",  with total ignorance of the debt bomb that grifter priests have set up for us.  You cant fix stupid.

skunzie Tue, 09/12/2017 - 16:03 Permalink

Apparently not everyone is educated to the fact that debt no longer matters.  The Donald successfully completely eliminated the debt ceiling.  Now it's full speed ahead to gt to a quadrillion and beyond.  

rejected Tue, 09/12/2017 - 16:12 Permalink

If memory serves,,, the military budget doesn't include the cost of all the wars here there and everywhere.If one was to add up the cost of the wars it comes to about 5-6 trillion.Then add in the 10 trillion the Pentagram cannot account for and the total is now 14-16 trillion.That leaves 4-6 trillion of debt for domestic and other unknown illegal use of money.But I forget,,, the narrative is those evil boomers sucking down SS. Forgive me...

ReturnOfDaMac Tue, 09/12/2017 - 16:15 Permalink

Since its all funny money anyway, mint 20 coins, give them trillion dollar denominations, deposite them at the FED, and call it a day.  Then tomorrow Ctrl-P and start all over again.They WILL take our paper AND they will LIKE it.

Seasmoke Tue, 09/12/2017 - 16:15 Permalink

I knew in 2008 we would be here. I just thought Gold would well over $20,000USD as well. That's the part of the equation I'm still not understanding. 

SmittyinLA Tue, 09/12/2017 - 16:25 Permalink

The real story is Jamie Gorelick Fannie Mae 12Trillion, Sallie Mae X¿Trillion, Auto Debt X Trillion, more mortgage fraud X trillion, legalized invasion $200.X Trillion unfunded liabilities.

Now Jamie is into Green Energy with Gorby and Jho Low and the Chicoms and Muslims.

whatsupdoc Tue, 09/12/2017 - 16:29 Permalink

I've got a feeling that debt doesn't matter anymore.  We've been waiting for the crash for years and have completely misunderstood the mechanisms that have been used to 'prevent' a crash.  Now I think it simply doesn't matter.  The central banks are now in a position to do whatever they like - and do just that.  Those of us with old-fashioned ways of seeing the world simply are in a state of cognitive dissonance as to how the whole system is still standing.I'm a zombie just awestruck and dumbfounded.  I don't know what to do.

Rebelrebel7 (not verified) Tue, 09/12/2017 - 16:57 Permalink

It is absolutely appalling that you have the audacity to insert the word real into this headline! The only appropriate use of the word real for this article would be real right wing central bank establishment circular logic propaganda!Plan BStop lying and start telling the truth and call propagandists out for what they are! No better than Hillary Clinton!Inside the mind of someone caught up in the circular logic of privately owned central banks serving as custodians to our economy is a pretty fucked up place to be! I am baffled! Tell me, how does it work! Are there evil connivers that look for gullible idiots to serve as mouth pieces, like hey, here's a live one, let's put him put there, or are they all evil, or is there an evil part of the personality in control of an idiot part of the personality convincing it to do evil things and believe that they are good things?! Someone, please tell me!  This article is ridiculous because it starts  by accepting  the validity of the Federal Reserve Act of 1913, the IMF, BIS,  and World Bank which are all part of the privately owned banking cartel charging interest to sovereign nations which is nothing more than a bank tax on citizens for which they have no right to claim, therefore making it a circular argument based on a logical fallacy!If we continue down the yellow brick road of the Federal Reserve Act of 1913 and privately owned international central banking cartel:1.)We will destroy the economy  when we  reduce the national debt,  because the money supply is based on debt.2.) There will  be an endless boom bust cycle because when the banks issue loans, they create money in the equivalent of the principal of the loan, but do not create the money required to pay the interest on the loan, leaving a shortfall in the money supply of the interest payments required.3.) We will go deeper into debt or destroy the economy because the only central bank solutions are  to issue more debt or destroy the economy.We should not revert back to the gold standard.  It has always ended in failure. The majority of the wealth has ended in the hands of a select few every single time that it has ever been implemented.The rise of cryptocurrencies has proven how simple it would be to eliminate the central banks. All accounting of a Congress issued currency  must be open to the public at all times. If Congress were to resume its responsibility as stipulated in Article 1 Section 8 Clause 5 of the constitution and coin money and regulate its value debt free:1,) The budget would automatically balance 2.) There would be no need for income taxes, estate taxes, capital gains taxes, and corporate taxes3.) There would be no need to reduce spendingThe entire principal of a debt issued monetary system by a private entity is nothing more than a bank tax on citizens to which they have no right to claim! For more on this please read The Web of Debt and the Shocking Truth About Our Money System And How We Can Break Free by Ellen Hodgson Brown J.D.  

Dutch1206 Tue, 09/12/2017 - 17:03 Permalink

Pretty simple.  The compounding effect works against you just as much as it does for you depending on which side of the ledger you are on.  The only thing you can do now is try and slow the rate of debt increase, but even that is a massive stretch.

Deep Snorkeler Tue, 09/12/2017 - 17:06 Permalink

Putin and Xi run the world now.The US plays with military toys.Outsmarted, outplayed, the USsquandered its future on insanelyexpensive weapons and a policy ofintimidation and threats.  Now theUS is cutout, leftout and surpassedby a vast techno-economy that itcannot grasp. The current US GDPgrowth/per capita is the omen of doom.