The National Debt Has Grown To $36.5 Trillion!! (#GotBitcoin)

US Treasury Seeks To Borrow A Record $3 Trillion This Quarter. The National Debt Has Grown To $36.5 Trillion!! (#GotBitcoin)

Massive stimulus to support the U.S. economy through the coronavirus crisis will cause the Treasury to borrow a record $3 trillion this quarter.

The department on Monday announced the total, which is actually $2.999 trillion.

“The increase in privately-held net marketable borrowing is primarily driven by the impact of the COVID-19 outbreak, including expenditures from new legislation to assist individuals and businesses, changes to tax receipts including the deferral of individual and business taxes from April – June until July, and an increase in the assumed end-of-June Treasury cash balance,” the department said in a statement.

On top of that borrowing, the Treasury also said it anticipates another $677 billion in the third quarter. First-quarter borrowing totaled $477 billion.

The red ink comes thanks to multiple stimulus efforts Congress has passed to resuscitate an economy brought to a standstill amid social distancing efforts to halt the virus spread. Allocations thus far have totaled more than $2 trillion, and at last one more package is expected to help the more than 30 million Americans who have hit the unemployment line as well as thousands of other businesses that have seen their revenue streams evaporate.

The Treasury Department also is backstopping several lending programs for the Federal Reserve, which is leveraging Treasury guarantees in programs aimed at providing another $2.2 trillion in funding to businesses and households.

Just since March 1, the national debt has grown by $1.5 trillion to $24.9 trillion, a 6.4% increase. The budget deficit through March, or the first six months of the fiscal year, totaled $744 billion, on pace to easily eclipse the biggest shortfall in U.S. history.

Updated: 6-15-2020

Governments May Revisit Postwar Playbook as They Tackle Huge Debts

Financial repression worked after WWII, but it isn’t without costs and risks.

Leaders around the world have compared their efforts to bring the novel coronavirus under control to fighting a war. The similarities may not end when the battle to tame the virus has been won, and the debts accumulated by governments have to be repaid.

In the U.S. and elsewhere, government debt is set to soar this year, reflecting lower tax revenue and the cost of financial aid to businesses and households during lockdowns. The International Monetary Fund forecasts that U.S. government debt will reach 131% of annual economic output this year, up from 109% in 2019.

That is a higher debt burden than after World War II. Other countries are facing similarly high debt levels, including the U.K., France, Italy and Spain.

Some people thinking about how to pay down the debt are looking at an approach used after World War II: financial repression, or policies that ensure that interest rates remain low. They include central-bank purchases of government bonds and regulations prodding investors to hold such securities, said Keith Wade, chief economist at Schroders. Such measures would help hold down bond yields, lowering interest costs over time.

“It is increasingly likely that governments will rely on financial repression to erode their debt-to-income ratios,” he said.

In the years after World War II, the U.S. Federal Reserve and Treasury Department ran a joint operation to support prices of government bonds—which kept interest rates down—while other measures in the U.S. and elsewhere placed limits on interest rates paid by banks, making alternatives to government bonds less attractive to investors.

Similar measures were adopted by the U.K. and other governments, and they worked.

According to a 2015 paper by economists Carmen Reinhart and M. Belen Sbrancia, financial repression lowered the average interest bill of 12 governments by between 1% of gross domestic product and 5% over the years from 1945 to 1980.

The system “played an instrumental role in reducing or liquidating the massive stocks of debt accumulated during World War II,” they wrote.

Some economists see financial repression as a strong option, in part because the main alternatives don’t appear promising.

In theory, an acceleration in economic growth would make it possible to repay the debt quickly. But such a pickup appears unlikely for economies with slowly growing populations and productivity.

Another approach would be to encourage higher inflation, which allows the nominal debts incurred today to be paid down with cheaper money in the future. But developed-economy central banks have tried and failed for most of the past decade to lift inflation to their targets around 2% for a variety of reasons unlikely to go away, such as aging populations, slow economic growth, globalization, advancing technology and low interest rates.

And if central banks succeeded in fueling much higher inflation, they could risk letting it get out of control—which would harm the economy and prove extremely unpopular, as in the 1970s.

The other main option for whittling down the debt is a combination of spending cuts and tax increases, or austerity, which proved politically divisive after the 2009 global recession.

“If the austerity debate continues to be as poisonous as it is now, the way to pay down debt may be through financial repression,” said Ricardo Reis, an economist at the London School of Economics.

However, financial repression isn’t without its costs and risks.

While the costs of austerity would largely fall on lower-income households, the suppression of interest rates would hit savers.

Financial repression also requires a level of coordination between a nation’s monetary and fiscal authorities that most central bankers prefer to avoid for fear of losing their independence from political pressures.

But for much of their history, central banks have played a central role in debt management. Indeed, the Bank of England started off as a vehicle for funding the U.K.’s wars, and only handed over its responsibility for managing government debt to a separate state agency in 1998. Many other European central banks continued to perform that function until the launch of the euro, when they were required to concentrate on fighting inflation.

As Mr. Reis has chronicled, tensions between the Fed and the Treasury over the former’s debt mandate often appeared “worthy of a political drama TV series,” and culminated in the 1951 Treasury-Fed accord, under which supporting the national debt was no longer an objective for monetary policy.

Similar debates in coming years might not have the same outcome.

They also may be postponed for a while. In the heat of the battle, nobody is spending too much time worrying about how those pandemic-related debts will be managed.

“You’re talking to a very fiscally conservative person,” said Ms. Reinhart, the World Bank’s newly appointed chief economist, in response to a question on the wisdom of borrowing so much in response to the pandemic. “But this is a war. In a war, you worry about winning the war, and then you worry about paying for it.”

Updated: 7-20-2024

Interest Payments On US National Debt Will Shatter $1,140,000,000,000 This Year – Eating 76% of All Income Taxes Collected!!! #GotBitcoin #bitcoinfixesthis

The vast majority of Americans’ income taxes are now being swallowed up just to pay interest on the country’s national debt, new numbers show.

Economist E.J. Antoni reports that based on the Fed’s June numbers, interest on the national debt is the equivalent of 76% of all personal income taxes collected by the government.

“Interest on the federal debt was equal to 76% of all personal income taxes collected in Jun – that’s the Treasury’s largest source of revenue and three-quarters of it gets consumed just by interest; does Congress know? Do they even care?”

Antoni says the cost to service the federal debt has exploded 33% in a single year, and set to get worse.

The economist also reports that interest on the national debt was the single biggest expense for the government in June, far outrunning other critical public services, and the Treasury expects it will break the $1.14 trillion level this fiscal year.

Updated: 2-21-2025


Debt Has Always Been the Ruin of Great Powers. Is the U.S. Next?

From Habsburg Spain to Trump’s America, there’s no escaping the consequences of spending more on interest payments than on defense.

Is that the heady scent of hubris, wafting through the winter air of Washington, D.C.? So bold has President Trump been in the first month of his second term that nervous Europeans wonder if the American republic is now unabashedly an empire.

Trump renames seas. He reclaims canals. He demands Greenland. He trolls Canada. His proposal for peace in Gaza is wholesale resettlement of its population. His plan for peace in Ukraine begins to look a lot like partition.

In the ancient Hellenic world, hubris was the kind of pride or arrogance that led a mortal to defy the gods. But hard on its heels there usually came Nemesis, the goddess of divine retribution. The historian prefers to exclude deities from his narrative.

He discerns the more prosaic operation of budgetary constraints. For it is these, not gods, that set limits on the geopolitical ambitions of republics and empires alike.

What I call Ferguson’s Law states that any great power that spends more on debt service than on defense risks ceasing to be a great power. The insight is not mine but originates with the Scottish political theorist Adam Ferguson, whose “Essay on the History of Civil Society” (1767) brilliantly identified the perils of excessive public debt.

Ferguson understood what modern economists call the “tax-smoothing” properties of public debt: By borrowing to pay for a war or some other emergency, a government can spread the cost over multiple generations of taxpayers.

But he also saw the catch. “The growing burden,” he observed, is “gradually laid,” and though a nation may “sink in some future age, every minister hopes it may still keep afloat in his own.” For this reason, public debt is “extremely dangerous…in the hands of a precipitant and ambitious administration.”

His Conclusion Was Prophetic: “An expense, whether sustained at home or abroad, whether a waste of the present, or an anticipation of future, revenue, if it bring no proper return, is to be reckoned among the causes of national ruin.”

Economists have long sought in vain a threshold that defines how much debt is too much. My own formulation of Adam Ferguson’s idea focuses our attention on the crucial historical relationship between debt service (interest plus the repayment of principal) and national security (expenditure on defense, including investment in research and development).

The crucial threshold is the point where debt service exceeds defense spending, after which the centripetal forces of the aggregate debt burden tend to pull apart the geopolitical grip of a great power, leaving it vulnerable to military challenge.

The striking thing is that, for the first time in nearly a century, the U.S. began violating Ferguson’s Law last year. Annual defense spending—to be precise, national defense consumption expenditures and gross investment—was $1.107 trillion in 2024, according to the Bureau of Economic Analysis (BEA), while federal expenditure on interest payments (the government long ago gave up on paying down principal) topped out at $1.124 trillion.

These outlays can also be expressed as percentages of gross domestic product. The Congressional Budget Office (CBO), which uses a narrower definition of defense spending than the BEA, places it at 2.9% of GDP for last year.

Net interest payments (adjusting for the interest received by bonds held by government agencies) amounted to 3.1%.

We have seen nothing like this since the era of isolationism. Between 1962 and 1989, U.S. defense spending averaged 6.4% of GDP; debt service was less than a third of that at 1.8%.

Even after the end of the Cold War, the federal government was still spending, on average, roughly twice as much on national security as on interest on the debt.

The fact that the U.S. is currently projected to spend a rising share of its GDP on interest payments and a falling share on defense means that American power is much more fiscally constrained than most people realize.

By 2049, according to the CBO’s latest long-term budget projection, net interest payments on the federal debt will have risen to 4.9% of GDP. If defense spending maintains its recent share of discretionary spending, it will amount to half that share of GDP.

Nor is there any real possibility that defense spending will increase dramatically. Because such spending is discretionary, it has to be appropriated by Congress every year, unlike spending on entitlement programs (which is mandatory) and interest payments (nonpayment of which would be default). If anything, budgetary constraints are likely to put downward pressure on defense spending in the decades ahead.

Empires Crippled By Debt

Ferguson’s Law—that it is dangerous for a great power to spend more on debt service than on defense—is borne out by history.

In the 16th century, the Habsburg kings of Castile reigned over the first truly global empire. Revenues from American silver mines were crucial to financing Spain’s expansive military endeavors. Charles V and Philip II also enjoyed substantial tax revenues from their Castilian subjects.

But with every passing decade, the Spanish empire relied more on borrowing. It issued juros, long-term bonds held mostly by the Castilian elite. It also raised funds by selling asientos, short-term IOUs, to bankers in Genoa and elsewhere.

The system was stable until 1600, when Spain began to illustrate Adam Ferguson’s point. The total stock of juros grew by a factor of 3.4 between 1594 and 1687, at a time when the revenues of the crown stagnated.

Payments on the juros went from absorbing half of Spanish revenue in 1667 to 87% just 20 years later. As Philip IV told the Council of the Indies even earlier, in 1639, “I recognize that the introduction of the juros has caused the enormous ruin we experience.”

Between 1607 and 1662, the Spanish crown defaulted on part of its debt five times. Not coincidentally, the growth in per capita GDP that had characterized the “Golden Age” of the 16th century was followed by contraction in the 17th century. This in turn reduced the crown’s tax revenues.

The geopolitical repercussions were unavoidable. In 1640 Portugal regained its independence after 60 years of dynastic union. The Peace of Westphalia in 1648 marked the formal recognition of Dutch independence and the effective end of Spain’s predominance in Europe.

The Treaty of the Pyrenees in 1659 further underscored its diminished status, as Spain ceded territory to France.

Perhaps the most familiar case of a great power succumbing to fiscal constraints is that of Bourbon France in its contest with Hanoverian Britain in the late 18th century. Of all the great powers, France had the greatest difficulty in evolving a stable system of public debt management.

There was no central bank that could issue banknotes. There was no liquid bond market where government debt could be bought and sold. The tax system had in large measure been privatized.

Instead of selling bonds, the French crown sold offices, creating a bloated public payroll. London, by contrast, established not only a central bank and a relatively efficient tax system but also a thriving bond market.

French intervention in support of the American colonists, culminating at Yorktown in 1781, may have appeared a strategic masterstroke. But the fiscal consequences took Louis XVI’s government far beyond the limits of Ferguson’s Law.

In 1780, debt service absorbed two-fifths of total expenditure, the war department just a quarter. By 1788, debt service rose above half of total expenditure.

The history of the 19th century furnishes further examples: the Ottoman Empire, Austria-Hungary, Tsarist Russia. But the best example of all—and the one from which Americans have the most to learn—is that of Great Britain.

The Economics of Appeasement

On three occasions in its history, major wars against continental rivals (first France between 1792 and 1815 and then Germany twice in the 20th century) drove the British national debt above 150% of GDP.

At times, despite the breadth and depth of the U.K. bond market, this led to violations of Ferguson’s Law, for example in the 1820s and again in the 1870s.

But the general trend in the 19th century was for the costs of debt service to decline, thanks to the productivity gains of the Industrial Revolution and the peacetime surpluses run by Victorian chancellors of the exchequer.

This left room for the rearmament that ensured Britannia ruled the waves, as well as for the largest land empire in history.

Unfortunately, because Britain’s army remained small by continental standards, by 1914 London could not prevent Germany from launching its first bid for mastery in Europe.

In the wake of World War I, debt service exceeded military spending every year from 1920 to 1936. It was this breach of Ferguson’s Law, much more than any trust or sympathy toward Adolf Hitler, that inspired the policy of “appeasement.” Of paramount importance to the Treasury was the concern that higher spending on armaments would jeopardize Britain’s precarious recovery from the Great Depression.

In seeking to appease Hitler, British Prime Minister Neville Chamberlain failed, of course, to deter him and his confederates from launching another world war.

Despite the fact that U.K. defense spending rose above debt service in 1937, the signal was not sufficiently strong to dissuade Hitler from invading Poland, even when accompanied by an explicit pledge of support for Poland in the event of a threat to its independence.

The most that belated rearmament was able to achieve was to ensure that the British military survived the retreat from Dunkirk and won the Battle of Britain.

Another world war left Britain with another mountain of debt. In the decades after 1945, Britain relied much more on unanticipated inflation than on productivity growth to keep the costs of debt service below the costs of defense.

The British case illustrates that defying Ferguson’s Law need not doom a great power to swift decline. Britain crossed the limit in three periods after the mid 19th century, but in each case it was able to cross back.

Decline inexorably came, as inflation and low productivity growth forced successive governments to give up colonies and shrink the armed services. Still, the United Kingdom avoided defeat and immediate dissolution—the fate of many another great power.

Warning Signs For The U.S.

What are the implications for America today? Geopolitically, the U.S. finds itself in a situation comparable with that of Britain in the 1930s. Its military commitments are global, as has been true since 1945, and it confronts a new axis of authoritarian powers.

Yet America’s fiscal position is far more constrained today than ever before. The U.S. government is now in violation of Ferguson’s Law and is likely to move further beyond its crucial limit in the coming decades.

Can the U.S., like Victorian and interwar Britain, find a way back? Can it do even better, successfully deterring its foes—as Britain failed to deter Germany—and averting the possibility of a ruinous World War III? Or is America doomed to follow Habsburg Spain, the Ottoman Empire, Bourbon France and Austria-Hungary down the path of default, depreciation and imperial decline—even revolution?

There are four important differences between Britain in the 1930s and the U.S. in the 2020s, and all of them work to America’s disadvantage. First, the term structure of U.S. debt is shorter, making it more sensitive to changes in interest rates.

That makes it inherently harder to “inflate debt away” like the U.K. after World War II. Second, much more of it is in the hands of foreign investors.

Third, the trend of real interest rates in the U.S. seems less likely to be downward than it was in 1930s Britain.

Whereas British real interest rates fell in the Depression, in America they are currently projected by the CBO to rise from 1.7% in 2024 to 1.9% in 2026, declining slightly to 1.8% in 2034. The real growth rate of the economy is projected to be almost identical.

In this scenario, America’s debt will cost more to service in the period 2025-2035 than it did in 2015-2025, when the average real rate was 0.3%, especially because the stock of debt will continue to grow.

Finally, the U.S. today is encumbered with an expensive welfare system designed for a society with a higher fertility rate and lower life expectancy.

Entitlement programs such as Social Security and Medicare are now the biggest items of federal expenditure. They will only become more expensive as the population ages.

History suggests that any sustained period when a great power spends more on interest payments than on military capabilities is likely to see its strategic rivals challenge its position.

The tension between “guns and coupons” (as the interest-bearing parts of bonds used to be known) may also undermine its domestic stability, as governments try and fail to meet the competing demands of generals, bondholders, taxpayers and welfare recipients.

In the absence of radical reform of America’s principal entitlement programs—which successive administrations this century have either failed to achieve or ruled out—the only plausible way that the U.S. can come back within the limit of Ferguson’s Law is therefore through a productivity miracle.

Today, it may seem that the world is divided between a mighty American “Trumpire” and the feeble foreign competition. But the real contest of the second quarter of the 21st century may be between the much-vaunted economic promise of artificial intelligence—and history, in the form of Ferguson’s Law.