Annually, our national leaders repeat the ritual: The President presents a budget, Congress frets over it, after a lot of fretting the budget is adopted, and a couple of trillion dollars are added to the already unsustainable national debt.
Democrat President Joe Biden presented his generous $6.8 trillion spending plan on March 9, 2023. $4.7 trillion in taxes on corporations and high earners is also in the budget. As is a promise to cut deficits by $3 trillion over the next 10 years. Republicans controlling the House of Representatives immediately declared the budget dead on arrival.
Many articles have been written on how this budget would achieve its goal of reducing deficits (the shortfall between revenues and expenditures: $722.6 billion so far this fiscal year). Some have pointed that this budget will not reduce the national debt (the accumulation of years and years of deficits: $31.4 trillion as of 03/16/23).
Here, it will suffice to say that Jesus fed 5,000 people with 5 loaves and two fish (John 6:1-14), and perhaps President Biden truly believes he can accomplish something similar.
Barring miracles, can the U.S. sustain its current debt?
In its Financial Report posted on January 31, 2023, the U.S. Department of the Treasury, Bureau of the Fiscal Service, said the following,
The current fiscal path is unsustainable … The debt-to-GDP ratio was approximately 100 percent at the end of FY 2021, and under current policy and based on this report’s assumptions is projected to reach 701 percent in 2096.
The national debt is the nation’s credit card.
Just like an individual’s credit card, the national debt can avoid immediate full payment of obligations. Also, just like an individual’s creditor (the bank or credit union that issued the credit card), creditors that hold U.S. debt (China, for instance), will not lend indefinitely. At some point, creditors start worrying about losing their money and stop lending.
Credit card companies watch your credit balance in relation to the money you said you make. This will give them an idea whether you can pay down your balance or not. Creditors of the United States do the same. They watch the U.S. national debt as a percentage of the U.S. Gross National Product. By traditional metrics, when the Debt to GDP ratio reaches 77%, its time to worry. The U.S. Debt to GDP at the end of the 4th quarter 2022 was 120%. When there is not enough money in the kitty to pay creditors, “full faith and credit” does not mean much.
How about infrastructure and benefits?
The higher the national debt, the more revenue goes toward paying interest on the debt, and less revenue goes toward infrastructure or benefits like healthcare.
Lowering interest rates makes it easier to pay back debt but will unleash inflation. The current rising interest rates will suck money away from other government expenditures.
Why is it practically impossible to lower the national debt?
Politicians depend on donors and voters to keep their job. Dependence on government largess is widespread, and nobody likes to pay taxes.
The most a President and Congress can do is prepare a complex budget that promises to lower deficits over 8 or 10 years (which means nothing when a new President and new Congress comes into power), raise the debt limit each year, and hope that when the day of reckoning arrives they will be long dead.
Accepted economic theories
The current trajectory of the U.S. national debt could be attributed to Keynesian Economics or to Modern Monetary Theory. However, a more accurate description would be Kicking the Can Down the Road.