Remember the national debt? Well, it’s huger than ever, even though this year’s presidential candidates are mostly highlighting other problems.
The debt, at $19.3 trillion, is four times larger, adjusting for inflation, than when Ronald Reagan lamented its size in his 1989 farewell address. Yet only one of this year’s presidential candidates, Republican John Kasich, had a plan for doing anything about it, and he left the race after winning a grand total of one state. The two front-runners – Republican Donald Trump and Democrat Hillary Clinton – have said little about the debt, except for Trump’s jarring suggestion that maybe Uncle Sam can save a few bucks by renegotiating the debt and paying back less than 100 cents on the dollar.
The size of America’s debt enrages a small cadre of thriftarians, while inducing drowsiness in most others. Complacency sets in because the fiscal crisis that’s supposed to occur as America borrows more and more keeps not happening. “Maybe we won’t have a crisis,” Maya MacGuiness of the Center for a Responsible Federal Budget explains in the video above. “What could cause a crisis, though, is if interest rates go up significantly. If you’re spending money on interest payments, that’s money we could be spending in better places.”
Interest rates are almost certain to go up, in fact, since they’ve been so low for so long that they can’t really go down. Barring sudden signs of inflation, the Federal Reserve is likely to hike rates slowly. Even so, a couple of years from now, rates could well be 2 percentage points higher than they are now, and maybe more. Even that would sharply boost U.S. borrowing costs.
The debt now totals about 105% of GDP, roughly twice the size of the economy it has been historically. The annual deficits that keep pushing the debt higher have come down during the last several years, as the economy recovers from the recession that ended in 2009. But America still spends about $500 billion more each year than it takes in, meaning the debt will rise indefinitely. If Congress does nothing, at some point the ability to finance Medicare, Social Security and other things the government pays for will deteriorate and perhaps implode.
In the video, MacGuiness outlines various ways this could happen – gradually or abruptly. She also suggests ways Trump and Clinton can talk to voters about the debt without scaring them to death over tax hikes and spending cuts. “Explain the aspirational piece of this,” she advises. “If we fix this problem, our economy can truly be the strongest one there is in the world.” The candidate who can pull that off deserves to win.
Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.