On the day in 2011 when the gross national debt crossed $14 trillion Bill O'Reilly emphatically proclaimed on the O'Reilly Factor on FNC that we had reached our borrowing limit. The USA could go no deeper into debt in this pundit's opinion without serious widespread bad effects to our country. Well the national debt was over $36 trillion @ the end of 2024.
Since the debt has almost tripled since Bill's cataclysmic statement people have given up making statements like Bill did in 2011 but are satisfied to just say that the debt is unsustainable or that our children & grandchildren will pay this debt off. Most older Americans are happy to leave it @ that because the equation does not include them - just their children & grandchildren who they reason can fend for themselves when the time comes.
But the most interesting way pundits have been thinking about this large debt number lately is to find different examples that show its enormity to impress the general population who live in oblivion & couldn't care less.
The simplest of these examples is to recommend that people write out the entire debt number showing all 12 zeros - $36,000,000,000,000.
Or, you could ask how long it would take to spend a trillion dollars if you spent a million dollars per day. Please let me know - I'd be interested to see what you get.
Still, another way to illustrate the huge debt is to ask how high a stack of one trillion dollar bills would reach (using the standard that a stack of 100 bills = 1.09 cm high). Relating the answer to the distance to the moon makes the point. And that's just for 1,000,000,000,000 bills not 36,000,000,000,000.
The problem with all of these examples, as entertaining as they are, is that they don't help us understand that the gross national debt predicament is not just a large dollar number - which should be obvious after all the years of deficit spending with no apparent ill effects to the country.
The January 21, 2021 post entitled The Significance Of The National Debt explains that the debt crisis will come when the Treasury can't find a buyer for our debt - & this was well on its way to happening on April 9 only hours after Trump's reciprocal tariffs on nearly 100 countries had taken effect. The DJIA had dropped over 4,500 points from April 3 to April 8 after Trump announced his reciprocal tariffs on April 2. This precipitous drop over 4 days totaled over 11% for the DJIA, over 12% for the S&P 500, & over 13% for the Nasdaq Composite.
In the past such times of stock market stress caused investors to rush in a herd-like movement to the United States Treasury bond market. But not this time - Treasuries fell just as precipitously as stocks with the 10-year Treasury note yield rising from 4.01% on April 4 to 4.48% on April 11 meaning investors demanded higher yields to buy our debt. A bad sign.
The reciprocal tariffs caused the damage & Trump blinked, pausing them for ninety days, except for tariffs on China, after he realized that foreign buying of our debt was drying up thereby beginning the end of America's deficit spending party.
Now by all means do the above calculations & write out all the zeros when expressing the national debt to see if it helps you get a feel for its enormity. But also to help get a handle on the individual burden of the debt, divide $36,000,000,000,000 by 335,000,000 United States citizens to see the equal share of every man, woman, & child in the citizenry. This is the measure to be concerned with if Trump reinstates the reciprocal tariffs after the ninety day pause ends.
Hi Doug – well needed post as many are not well versed in the Laws of Economics. Your numerical exercises to assist the public in comprehending the deficit are well heeded.
ReplyDeleteEconomics is the most quantitative of the social sciences. And this assists all private entrepreneurs and businesses in their investments. I am sure Secretary of Treasury Bessent utilized quantitative models for investment and economic forecasts now as he did as a very successful hedge fund manager.
However, it is difficult to timely predict when our deficit will explode and result in the most serious result – US Dollar collapse, loss of the USD as reserve, with inflation spiking, and our economy spiraling into a serious recession, if not depression. That is because psychological factors can play a major role. Many investors likely used quantitative models that projected decreasing US investments due to the drastic tariff policy. Once a herd of global and US investors decide that the USD is unsafe, the herd may rapidly ( days, even hours ) dump their Treasuries and refuse to buy new Treasuries, or only at much higher rates. The US may have been at beginning stage of this April 11. Trump then had no choice but to significantly change his tariff policy with a 90 day pause. The USD was down I believe about 8% for the year and dropping rapidly. The pause may have averted a USD collapse.
Today May-12 US equity markets are way up, in large part to what is believed to be positive progress with a US-China tariff deal. Time will tell whether we are in a better economic state.
Regardless, much damage has already resulted from Trump’s irrational tariff policy. Many companies stopped hiring and also decreased investments. Many companies also increase their imports of necessary foreign goods to stay afloat. Economic savvy investors may have factored that into their quant models as there was data that imports were increasing and trade deficit widening.
Let’s all hope Trump (whose popularity has plummeted and increased odds Dems take control of Congress in 2026) has learned a lesson, that drastic tariff polices can tank an economy.
A reasonable approach would have been – (1) extend the 2017 tax cuts, (2) implement the DOGE cuts (3) watch your approval increase – be in a position of strength (4) witness increased investments into US along with USD rising and T-Bill rates decreasing (5) inflation under 2%, then finally a much more modest tariff policy. In essence –tariff strategies will work when the US is in a position of increasing strength……. Let’s hope we get to this state.
Hi Doug ,
ReplyDeleteAm I to understand that if we take action to pay down our debt the countries holding our debt will punish us by cashing in. Another words we have to keep making debt to avoid catastrophic consequences. Is that what you are saying?
Hi SS - No - if we slow down our trade deficit growth (or best - decrease it) and pay down our debt, countries holding our debt will continue to buy our debt and may even increase. Right now domestic and foreign investors have been demanding higher rates for our debt -- as they have been projecting our debt will continue to grow rapidly. The tariff policy has resulted in many investors projecting our GDP decreasing and thus less revenue to the Treasury thus exacerbating the debt. Let's hope the China-US trade deal details resonate well and that Trump backs off from further risky economic actions.
ReplyDeleteHi--I am not an economist nor do I present to be one. However, if you take notice, the folks that are projecting the tariffs will negatively impact our GDP are the liberal news media and never Trumpers. If you listen to the conservative POD CAST they are neutral to positive on the tariffs. When I lived in South America I was unable to buy an American car due to a 100% import tax. Is that fair? I do not want to see Trump “back off” his tariff policy—I want him to stay aggressive. That’s why I voted for him.
DeleteVery scary! A definite need for prayer!
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