Caution is warranted! Right now, economists from various backgrounds are formulating plans that impact your financial future. They are envisioning new and inventive ways to utilize your money long before you’ve had the chance to earn it.
While you are diligently working to serve your clients and customers, there are claims being staked on your earnings. Funds you’ll earn in the future are being allocated to extravagant projects and initiatives, on top of existing commitments from Washington.
As of the latest tally from the U.S. National Debt, each American citizen bears a responsibility of nearly $70,000. If we include U.S. Unfunded Liabilities—like Social Security, Medicare Parts A, B, and D, public federal debt, alongside federal employee and veteran benefits—each individual’s financial obligation climbs to nearly $383,000. Even more astonishing, this figure is set to double in the coming years at a rapid pace.
These economists, captivated by their complex graphs, foresee impending recessions and are convinced they know how to avert them. Their strategy revolves around pre-emptive stimulus, and in collaboration with politicians in Washington, they are striving to implement their ambitious plans before time runs out.
Fiscal space [its extent remains uncertain, but it’s clear more exists]. Magic money [the result of some light bulb moments among politicians]. Unmet social needs [opportunities to spend]. A lavish spending package [$1.7 trillion]. Justification for fiscal measures [addressing climate change]. Automatic programs [issuing payments to households as soon as a recession looms].
It’s clear these experts are on the case…
‘Don’t Worry About Debt’
Numerous pre-emptive stimulus measures were discussed in a recent article published by Reuters. If you missed it, the title was: In planning for next U.S. recession, economists say, don’t fret about debt.
What does this mean for us?
Here at Economic Prism, we find insight in catchy phrases much like we do in political slogans. Condensing complex ideas into a few words often results in a muddle of silliness. And when they rhyme, it becomes even more appealing.
Undoubtedly, ‘don’t worry about debt’ serves as a perfect example of all that’s amiss. It’s evident that no one has been particularly anxious about the debt for at least a generation or two. Indeed, the 21st century has been characterized by an excessive borrowing spree.
The growth of federal debt has spiraled out of control for decades. The prevailing thought has been that somehow, we can “grow” our way out of this issue. However, this has yet to happen despite various policies aimed at borrowing against the future to finance current spending.
The reality is simple: it’s impossible to grow out of debt when the debt is increasing at a rate surpassing the growth of the gross domestic product (GDP). For instance, in 2000, the federal debt stood around $5.6 trillion while real U.S. GDP was approximately $12.5 trillion. Today, federal debt has exceeded $22.8 trillion, whereas real GDP is only about $19.02 trillion.
Over the last 19 years, the federal debt has surged by more than 307 percent, while real U.S. GDP has only grown by 52 percent. This stark contrast demonstrates that we are not, in fact, growing our way out of debt. Rather, this divergence is the antithesis of what one would expect when genuine concern over debt exists.
America’s Path to a $40 Trillion National Debt by 2028
When citizens genuinely worry about debt, they become frugal, spend within their means, and prioritize paying off what they owe. In stark contrast, both public and private debt have rapidly eclipsed economic growth. With economists and politicians eager to borrow and spend, the situation is likely to escalate dramatically.
The featured economists from the article who advocate the philosophy of ‘don’t worry about debt’ include: Karen Dynan (a former Fed and Treasury official now at the Peterson Institute for International Economics), Julia Coronado (a former Fed staffer and founder of Macropolicy Perspectives Consultants), Catherine Mann (global chief economist at Citi), and Laurence Meyer (former Fed governor).
These economists are the same individuals who have guided us into our current predicament. In this convoluted environment, where pre-emptive stimulus has become the norm, it’s no surprise that politicians are delighted. Such strategies provide them with unrestricted power to amass unprecedented levels of debt.
Unfortunately, with these professionals at the helm, America is heading towards a $40 trillion national debt by 2028. The trajectory to reach this number faces little opposition.
The federal budget deficit for the fiscal year 2019 was nearly one trillion dollars. When projecting forward eight years, the national debt could easily reach $30 trillion, despite economic growth.
Eventually, the economy will slow down, causing the deficit to spike to $2 trillion. That’s when these experts will take action.
They will introduce a $1.7 trillion spending package on top of that $2 trillion deficit. They will tackle climate change vigorously. Automatic payment systems will be activated. Wealth redistribution efforts will be expanded. They will create numerous jobs, even if they are not substantive. They will undertake significant initiatives to eradicate poverty. Their collective efforts will be directed towards the ambitious goal of constructing a better world.
By 2028—or potentially sooner—America could find itself burdened with a $40 trillion national debt and little to show for it. Inflation will soar, leaving the population financially strained, while lawmakers will devise even grander plans to remedy the chaos ignited by their own actions.
This situation assumes, of course, that no unforeseen disasters strike beforehand.
Sincerely,
MN Gordon
for Economic Prism
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