As the new year begins, and we start to write the first chapter of 2017, the United States of America is days away from swearing in a new President and administration. In my opinion, one of the least discussed problems facing the new administration and Congress is the increasing national debt.
By comparison, when George W. Bush was first sworn in to office, the national debt was $5.63 trillion. Eight years ago, when Barack Obama took office, the national debt almost doubled to $9.98 trillion. Today as Donald Trump prepares to be sworn in, the national debt stands at $19.88 trillion1.
This figure does not include the unfunded obligations we have made through Medicare, Medicaid and Social Security. The non-partisan Congressional Budget Office estimates that would bring total obligations of our government close to $200 trillion dollars!
I have typically considered myself to be socially liberal but fiscally conservative. I don’t find those two viewpoints to be mutually exclusive. As a matter of fact, anyone who wants to maintain or even increase the social programs provided by the federal government, should understand that the federal government must be financially sound in order to continue to provide those programs. If our debt continues to climb, it follows that the interest to be paid on that debt will increase. The more we pay in interest, the less we can spend on social programs. Understand that a dollar spent by the government on interest is a dollar that can’t be spent on feeding a poor child, can’t be spent on medicine for the elderly, can’t be spent to provide a college scholarship, or used to pay the salary for the men and women in the Armed Forces. Without reforms, paying interest on our national debt will continue to crowd out our ability to provide services to our citizens.
Obviously, we can’t continue with this “business as usual” approach. We must bring spending and revenues in line.
A quick reference note may be needed to understand the difference between our debt and our deficits. A deficit occurs annually within a one year timeframe if we spend more than we make (expenses are more than revenues). The opposite of a deficit is a surplus. A debt is the longer-term accumulation of the money we owe as a country. To take this example to a personal level: if you have more expenses than income this month due to excess Christmas bills, you might have to charge the difference on your credit card to cover that deficit. If you don’t pay off the credit card completely, your on-going credit card balance is your debt.
The solution to our deficit is simple, albeit not easy. We must reduce our spending or increase our revenues. I will defer offering deficit solutions at this time and only comment on a debt solution. Again, paralleling the national debt to personal finance, one solution to reducing interest payments for the individuals is to refinance.
I suggest we consider refinancing our national debt at historically low rates now before interest rates rise. We can lock in these low rates for a longer timeframe. This will cause less of our tax money to be used for interest and more can be used for services for our citizens or reducing our national debt. I propose the United States issue a 100-year bond, not unlike what Ireland and Belgium have already done. Other countries are considering the same at this time.
But we need to act fast because interest rates have already started to increase. If the new administration locks in the historically low borrowing costs now, they can reduce the interest we are paying on our debt for years to come. This could also reduce our annual deficits. Of course, this would only be part of the solution and more work needs to be done. No person or country ever borrowed their way to greater prosperity and we as citizens can’t be so naïve as to think we would be the first country to do so.
As former President Bill Clinton once said, “We’ve got to deal with this big, long term debt problem, or it will deal with us”. The 100-year bond refinance idea is one solution that could help us to reach the fiscal responsibility needed to provide us with greater long term prosperity.
- Monthly Statement of the Public Debt of The United States, November 30, 2016