The U.S government saw its first debt in 1790, after the end of the Revolutionary war. The public debt was $72 million U.S. dollars. Since then, the debt kept growing due to the post-war economic recession, and four decades later, it was already at $120 million U.S. dollars.
The U.S. national debt was 26.7% of GDP in the 1970’s and saw an increase to 48.3% under Reagan and Bush presidencies in the 1980’s and early 1990’s. During the Clinton administration in 2001, the U.S national debt fell to a low of 30.9% only to slowly start rising under George W. Bush presidency.
Treasury data says that under President Trump’s first three years in office, the national debt increased by only 4%. However, the unpredicted pandemic spread had a major impact on the U.S economy. According to CBO’s reports, the U.S.federal debt may grow to 29.4% upon completion of Trump’s mandate.
According to the Treasury Department, in September 2020, the United States public had a debt of 27 trillion U.S. dollars, which is 4.2 trillion more than in 2019. Even before the pandemic, U.S. national debt was at an alarming rate since the U.S. government spends more than it takes in. However, government debt during so-called “war times,” or in a global health crisis, might not necessarily be a bad thing, economists say.
“It’s helpful in the short run, but it could be harmful in the long run,” Bill Gale, Federal Economic Policy and the former vice president and director of the Economic Studies Program at the Brookings Institution., told ABC News of government borrowing. This debt will put a heavy burden on future generations.
Who owns the huge and growing U.S. national debt? According to the U.S. Treasury, about 70% of the U.S. debt is owned by their own government, domestic investors, public and private pension funds, Social Security trust funds, and the Federal Reserve. Foreign institutions own the rest 30% of the debt.
“It’s the $20 trillion that economists worry about because that’s the money that influences the credit market, that’s how much the government owes,” Bob Bixby, the executive director of the Concord Coalition, a nonpartisan fiscal organization that educates fiscal responsibility based in Washington, D.C., told ABC News. “How much the government owes itself doesn’t really have an effect on the economy, it’s more of a bookkeeping issue.”
Due to the coronavirus pandemic, the Congressional Budget Office estimated a budget deficit of $3.3 trillion, which is the highest deficit as a percent of GDP since 1945. “People have no way of understanding what that means when you get to the ‘umpteenth trillion dollars,'” Bill Gale added. “One way people try to get a more realistic understanding of it is to scale it relative to GDP.”
CBO’s report says that the national debt will soon exceed the size of the economy. According to them, the debt-to-GDP ratio will be 98 % of GDP by the end of 2020. By 2030, CBO projects that U.S. national debt will rise to 109 percent of GDP.
“The federal deficit will exceed $3.3 trillion this year and will remain over $1 trillion throughout the rest of the 10-year period. Over the next 10 years, deficits will remain elevated, totaling $13 trillion over that period” CBO reports stated.
How does all this affect the U.S. economy in the long run? The government will have insufficient funds to invest things like infrastructure, education, defense and more. It also means that taxes could be raised which will have a bad impact on the entire economy. Also, the U.S. trade deficit will grow, which may reduce tariffs and trade wars.
“I think what people need to do is think about what is good for the long-term health of the economy and the prospects for future generations and consider the debt on that basis.” Bob Bixby added.