Debt-ception
Updated: Apr 29, 2021
By Tyler Williams
(Source: History.com)
America’s national debt looks like a scary monster sitting on the chair in our bedroom at night salivating not for organs and brains, but for every dollar and cent in the wallet. But what if it's just a pile of clothes that hasn't been put away when the lights turn on?
According to the American Banker, The US Debt Clock currently reads $28 trillion, give or take, and will grow rapidly in the coming years. In fact, the coronavirus pandemic has cost the U.S. economy $16 trillion, and Congress appropriated more than $3 trillion in aid in 2020.
(Source: American Banker: Congressional Budget Office)
WLBT presents the following scenario illustrating the national debt.
“If you were to stack $100 bills on top of each other, one million dollars would be around the three feet mark - about the height of a chair or a toddler. And if you keep stacking the $100 bills, eventually past the peak of the world’s tallest building, going a little over half-a-mile into the air, this would be one billion dollars. But we’re going for a trillion...this would have you stacking $100 bills into the stratosphere and past the International Space Station. You would have to stack these bills 631 miles above Earth’s crust. That would equal one trillion dollars. Now imagine 28 stacks of 631 mile-high $100 bills. That’s America’s debt."
(Source: American Banker)
Moreover, let’s review how much the government is spending and what strategies we should take to reduce the amount of debt. Yet, nobody talks about the flip side of it which is how much assets the United States holds. As of now, the US Debt Clock shows that the United States has $160 trillion dollars in assets, which is far greater than the national debt. If the Federal Reserve wanted to step in, the debt would be wiped out by now. Think about this situation like a balance sheet. The three components of every balance sheet are assets, liabilities, and equity. The reality is we’re not in debt, we just have debt.
A 2017 Forbes article written by Michael Foster says “the next time you hear someone panic about passing off debt to our grandkids, ask them if they know how many assets we’re passing off to our grandkids and whether the US’s public debt load is actually manageable relative to the country’s annual GDP and government revenues”.
(Forbes 2017: YCharts)
Now, looking at the total assets and our nation's debt, one can deduce that the issue is not the debt itself. The issue is the government controlling the accumulation of debt overtime. A real catastrophe would be if the debt is more than the assets, which would be an economic disaster. If the Federal Reserve addressed this matter, our debt would be squished like a bug. Curiously, the next question is, why don’t we eliminate the debt if the assets are larger than the liabilities? According to the Balance, there are three main reasons why:
The U.S. economic growth has historically outpaced its debt. For example, the U.S. debt was $258.68 billion in Aug. 1945 but the economy outgrew that in less than three years. By 1960, the GDP more than doubled. Congress believes that today's debt will be dwarfed by tomorrow's economic growth.
Congressional representatives have a lot to lose by cutting spending. For example, if elected officials cut Social Security or Medicare benefits, they could lose their next election.
Raising taxes can be politically unpopular. For instance, experts believe President George H.W. Bush lost reelection because he raised taxes after promising he wouldn't raise taxes at the 1988 Republican convention. He raised taxes in 1990 to reduce the deficit, and voters remembered.
Historically speaking, the History Channel stated Andrew Jackson was responsible for paying off the national debt, but it backfired when: “Jackson vetoed a number of spending bills throughout his tenure, putting an end to projects that would have expanded nationwide infrastructure. He further paid down the debt by selling off vast amounts of government land in the West, and was able to settle the debt entirely in 1835.” Additionally, this source further reports Jackson’s triumph contained the seeds of the economy’s undoing. The selling-off of federal lands had led to a real estate bubble, and the destruction of the national bank led to reckless spending and borrowing. Combined with other elements of Jackson’s fiscal policy as well as downturns in foreign economies, these problems led to the Panic of 1837. Consequently, a bank run and the subsequent depression tanked the U.S. economy and forced the federal government to begin borrowing once again. The U.S. has been in debt ever since.
The American Banker noted that Alexander Hamilton saw collective debt as a way to build the nation — and its international credit — and bind the several states together in common cause. “A national debt, if it is not excessive, will be to us a national blessing,” he wrote in 1781. “It will be a powerful cement of our Union.”
Overall, the lingering question is are we able to bounce back as a nation financially by alleviating our debt, and cure our debt issue once and for all? Time will only tell if this is even a possibility.
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