America had a headline-grabbing milestone this summer.Unfortunately, it wasn’t our America 250 celebration.
Rather, it was passing the $40 trillion mark on our national debt.$40 trillion is a number that is very difficult to get your head wrapped around.It’s more than 120% of our GDP, a ratio that sounds more applicable to an emerging market in crisis than the biggest economy in the world.While the debt in and of itself is a problem, there are two related issues that are critical.
One is the rapid growth in debt accumulation.In 2017, we passed the $20 trillion mark, and less than 10 years later, we doubled that to $40 trillion.$50 TRILLION IN DEBT IS NOT A DISTANT THREAT.
AMERICA IS SPEEDING TOWARDS ITThis begets the second issue, which is the cost to finance all that debt.Warren Buffett, chairman and CEO of Berkshire Hathaway, makes his way to a morning session at the Allen & Company Sun Valley Conference on July 13, 2023, in Sun Valley, Idaho.((Photo by Kevin Dietsch/Getty Images))We no longer have the "exorbitant privilege" as it is often referred to of countries adding U.S.
dollar reserves no matter what, and that means now, investors in our debt, if we can find them, are price-sensitive.In layman’s terms, they are requiring more of a premium to lend the U.S.
government money.‘THE ODYSSEY’ REMINDS US OF THE NIGHTMARE WE ARE LEAVING FOR AMERICAN CHILDRENNot only are we running very high deficits (both in absolute terms of $2 trillion a year and in terms of deficits/GDP) that need to be financed, but in recent years, the Treasury has been financing our debt for short-term durations.While a bit cheaper, this debt is in constant need of refinancing (not to mention financing this way tends to be more inflationary).The reality is that the interest we are required to pay on the debt — that is, money we are spending to finance things we have already bought — is larger than our spending on the military and, if things keep going the same way, may o...