Is it time to start expressing concern about the national debt? This question may sound strange at first, but there are growing reasons to consider it. While the bond market remains calm and voters have their attention on other matters, the fiscal situation of the country has undergone significant changes in recent years. The aging population has led to an increase in Medicare and Social Security spending, and the country’s borrowing costs are at their highest level in two decades. Despite strong economic growth, Washington is still running a substantial deficit. To make matters worse, the national debt has reached a staggering $32 trillion.
Larry Summers, a former Treasury secretary and previously an advocate for perpetual deficits, has recently changed his stance. He now recognizes that the country is on an unsustainable path. The long-term sustainability of America’s debt depends on various factors, such as productivity growth, income inequality, foreign demand for the dollar, and the global bond market. However, there are numerous reasons to be concerned about the country’s financial situation and its ability to address it in the future. Unfortunately, it seems that nobody is paying attention.
This is a complete turnaround from the situation during the Obama administration when Washington was fixated on the country’s finances for the wrong reasons at the wrong time. Republicans, while warning of the risks associated with the debt, were also willing to harm the economy to damage the Democrats’ electoral prospects. The result was a period of slow growth, low interest rates, and low inflation.
Under Donald Trump, Republicans stopped prioritizing debt reduction and implemented significant tax cuts without corresponding spending cuts. Then, in response to the pandemic, a necessary stimulus bill was passed, further adding to the debt. Even when Republicans threatened to destabilize the global economy to address the debt, they were unwilling to reduce Social Security and Medicare benefits. While some policy changes were made, the overall budget situation remained concerning.
The cost of benefits for older Americans has nearly doubled in the past decade, and Social Security and Medicare are spending far more than their dedicated tax funding streams can cover. These programs are projected to exhaust their trust funds within the next decade. This is no longer a distant problem; it demands immediate attention.
Furthermore, the country’s borrowing costs are increasing by approximately 35% each year, and rising interest rates are driving up the average interest rate on government debt. These deficits, combined with high interest rates, create a dangerous situation. Summers and other economists argue that these deficits are unnecessary and harmful, leading to inflation and forcing the Federal Reserve to increase interest rates.
While the current situation may not constitute an immediate crisis, it is still cause for concern. The government’s inability to effectively address the debt is perhaps the scariest aspect of this situation. Republicans, in particular, use the debt ceiling as leverage while simultaneously contributing to significant deficits. They refuse to reduce defense spending or raise additional revenue for vital programs like Medicare and Social Security. Democrats, though less hypocritical, are hesitant to raise taxes on “middle-class” families.
The aging of the American population is an unavoidable reality, and it brings with it the need for increased government spending. At some point, the country will have to confront this reality and create a budget that accounts for these changes. It is crucial for policymakers to address these concerns rather than ignoring the potential consequences.
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