Wake up, America. That ticking sound you’re hearing is the American debt time bomb that with each passing day is getting precariously close to detonating and crashing the US economy.
Businesses, consumers and especially the federal and state governments have become hooked on red ink as if it were crack cocaine. Two factors have fueled this borrowing binge: an era of low interest rates (that’s coming to an end) and falling real wages thanks to the 15% rise in prices of Bidenflation.
Let’s review the borrowing up-escalator that accelerated during COVID but hasn’t subsided.
The King Kong of borrowing is Uncle Sam. The national debt is $31 trillion when including Social Security’s and Medicare’s unfunded liabilities. That’s getting close to 150% of our national gross domestic product of $22 trillion. Some $5 trillion has been added in just the past three years. Balancing the budget seems like a pipe dream these days.
Next add state and local government debt and unfunded liabilities. The American Legislative Exchange Council estimates that at just under $6 trillion.
Now what about American households? The latest estimate for consumer debt is $16.5 trillion, per the New York Federal Reserve. Most of that debt is mortgages, but increasingly Americans are taking on debt for routine expenses to pay monthly bills like groceries and gas at the pump. Thanks, President Biden.
Then we have corporate America and small businesses. Their debt burden, according to the Federal Reserve Board, just surpassed $10 trillion for the first time. Business borrowing can be a good thing — indicating economic optimism. But we have to wonder how many more FTX-type bubbles are out there inflated by low interest rates and all that helicopter money from Washington.
So add it all up, and American society now owes $66,000,000,000,000 of debt! That’s roughly three times our annual GDP.
What makes this tsunami of debt all the more dangerous is that interest rates are rising (with at least one or two more Fed rate hikes coming), which will make the cost of turning over the debt even higher.
Another danger sign: With wages (5% growth) falling behind consumer price inflation (7.5% growth), American families are borrowing more just to maintain their current living standard. Americans on average have lost $4,000 in purchasing power and some $30,000 in 401(k) plans in the Biden era.
By far the biggest debtor has been Uncle Sam — which has created a national culture of living beyond our means. During COVID, President Donald Trump pumped $2 trillion of “stimulus” red ink into the country when the private economy was shut down. But then, in an act of near-criminal financial negligence, Biden entered office and shoveled out $4 trillion more in green-energy giveaways, state bailout funds, student loan bailouts and welfare handouts to families with no one working.
A new-wave economic strategy called Modern Monetary Theory facilitated this borrowing blowout. The loony idea is predicated on the notion that because the US dollar is the world reserve currency, we can run up the federal credit card by trillions and still feel good about ourselves in the morning. Until, that is, interest rates start to rise.
Consumers are now engaged in the same reckless monkey-see, monkey-do behavior. The latest Federal Reserve Bank of New York report says credit card debt has skyrocketed by 16% this year to above $1 trillion. The Christmas season is witnessing even more debt to buy Yuletide gifts. Low-income Americans are taking on debt at the fastest pace of all. Come January, don’t be surprised if Americans look at their credit card debt and suffer severe buyers’ remorse.
For now, defaults and delinquencies are low, but we should have learned financial seas can shift on a dime. Meanwhile, the feds keep feeding the debt surge by increasing taxpayer mortgage insurance for million-dollar homes.
Debt isn’t necessarily a bad thing. It depends what we’re getting for it. When we borrow for roads or factories or homes or to finance our military to win wars, borrowing can be necessary and appropriate.
But we aren’t doing that. We’re borrowing to pay people not to work. We’re borrowing to finance windmills, Teslas and “reparation” payments to other nations and to pour money into failing schools and ObamaCare subsidies that go to Americans making up to $500,000.
We’re acting like a nation of wild-eyed teenage girls on a shopping spree at the mall — armed with Daddy’s credit card. At some point soon, we’re going to have to start paying our bills or this debt time bomb is going to implode. It won’t be pretty.
Stephen Moore is a senior fellow at the Heritage Foundation. He served as a senior economic adviser to Donald Trump. His latest book is “Govzilla: How the Relentless Growth of Government Is Devouring Our Economy.”
