Gary Alexander, senior writer at Navellier & Associates, provides the following commentary for weekend reading:
Realizing that it took our Republic 205 years to accumulate its first $1 trillion in total federal debt is humbling. The Reagan White House announced on September 30, 1981, at the end of Fiscal Year 1981, that the U.S. national debt had officially surpassed $1 trillion.
I was managing Alexandria House books for KCI Publications at the time and consulting editing a personal finance newsletter in Alexandria, Virginia, which is near the Capitol. We discussed in our editorial meetings whether the Republic could withstand a debt burden of $1 trillion.
After President Nixon closed the gold window on August 15, 1971, it was also 10 years before the gold standard was reinstated in that month. I cited Lewis Lehrman’s list of financial blunders during the intervening decade of September 1971–1981 in my October 1981 edition of “Alexander’s Monthly Economic Newsletter” (AMEN):
It goes without saying that we and the other 2,000 attendees at the 8th (November 18–22) New Orleans Investment conference, where I made my first of 40 consecutive appearances, were appalled by the staggering level of public debt.
I had no idea that, over the next 40 years, the rate of federal debt accumulation would increase significantly.
It took 205 years for the first $1 trillion, but only 15 years for the total debt to reach $5 trillion in 1996.
The next $5 trillion was added after another 12 years, bringing the total debt to $10 trillion in 2008.
The subsequent $5 trillion was added in just 4 years, bringing the total to $15 trillion in 2012 during Obama’s first term.
The next $5 trillion was added over the course of five years: The total federal debt surpassed $20 trillion as of September 7, 2017. In contrast to the CBO’s prediction, we reached $25 trillion in debt in 2020.
In just four years, from September 30, 2017, to September 30, 2021, there has been an increase of $10 trillion. The Congressional Budget Office estimated that instead of $10 billion by 2021, we would only gain $5 billion by 2027.
A flood of new money brought on by federal spending was the main reason for the 2020–2021 gain. Over and above regular spending, Congress passed additional spending bills totaling more than $5 trillion during the pandemic:
The amount spent was wildly excessive. Beyond the second quarter of 2020, there was no need for a “stimulus” due to a recession. By the end of 2020 and throughout 2021, the economy was booming. Many of these funds went to states that had surpluses and didn’t require the funding. Tens of millions of families who continued to work and were able to save money by working from home without commuting, traveling only occasionally, or going out to eat or shop received paycheck “protection” or relief. (While the pandemic was going on, all three of my children were working in well-paying jobs and receiving federal “relief”)
The majority of 2022’s inflation will come from this new money infusion. Food and fuel prices have increased more as a result of the conflict in Ukraine, but this trend was well underway before the first Russian tanks entered Ukraine on February 24, 2022. The Fed completely removed all monetary controls, which fueled inflation.
As this chart demonstrates, our debt started to soar after 2001 and accelerated after 2008. The Fed has maintained interest rates near zero for 10 of the past 14 years due to a fear of taking on too much risk. Something destroyed our hope and confidence. The Fed started a number of rounds of quantitative easing, as if America needed free, interest-free money injections to survive. There is a perception that our country is fragile and that we cannot take any risks, including normal (slow) accumulation of wealth or interest rates of at least 3%.
In some ways, it appears that the terrorists have triumphed, frightening Americans away from travel and keeping us from being the courageous country we once were. Our leaders have protected us from a disease that hardly affected young Americans who are of school age and working age by giving us low rates, free money, and checks we don’t need.
At our nation’s 246th birthday, we must consider whether we can reach 250 with such a fearful national mindset.
The best piece of news I can give you is that Japan, most of Europe, and overextended China all have much higher debt loads than the United States, making it the debtor that is least likely to default. China has a debt-to-GDP ratio of 300 percent.
