Can the United States Repay All its National Debt?
The American public debt is expected to reach $30 trillion by the end of January 2022, the equivalent of 130% of the US Gross Domestic Product (GDP). Meanwhile, the budget deficit has exceeded $3 trillion and growing. Considering President Biden’s plans, the public debt could reach $35 trillion by the end of 2022. But to find out if the US can repay its debt any time in the future, we need to look at the national debt’s history.
In 1966, the American debt began to accelerate. Between 1965 and 1978, two issues profoundly changed America’s finances. In 1966 President Johnson signed the Medicare program into law, creating the most expensive and enduring social program in US history. And from 1965 to 1975, America fought the Vietnam war, for which it paid a high human and financial price. Without an official declaration of war, the US had to borrow to pay for the war, causing the debt to increase from $317 billion in 1965 to $620 billion in 1976. The debt grew even faster in the 1980s; President Reagan accelerated the arms race, and by the time the Berlin Wall fell in 1989, the US debt had reached 2.85 trillion.
Between 1980 and 1990, the debt more than trebled; its size to the GDP increased by almost 70%. As the 21st century started, President George W. Bush cut the tax rates, and launched two wars. He invaded Afghanistan in 2001 and Iraq in 2003. While the tax cuts reduced government revenues, the wars increased spending. Consequently, the budget deficit grew, and the debt increased accordingly, causing its size to GDP to increase from 55% in 2000 to 91% in 2010. Meanwhile, the Great Recession of 2008 caused economic growth rates to decline, spending to rise, and the national debt to skyrocket. By the time President Obama was inaugurated, the annual deficit had reached $1 trillion. When Donald Trump became president in 2017, the debt had reached some $20.5 trillion. And though Trump promised to cut the deficit and reduce the debt, he cut the tax rates instead, causing both the deficit and the debt to increase. By the end of 2021, the debt had approached $28 trillion.
Economic recessions increase the national debt because they lower economic growth rates and reduce tax revenues. In 2020, spending to offset the economic effects of the COVID-19 pandemic added to the debt about $2 trillion. And as the debt increases, interest payments on the debt increase as will. For example, from 1962 to 2019, interest payments on the national debt averaged about 17% of the annual federal revenues. In 2018, interest on the debt reached 18% of the federal revenues, causing the debt and interest payments to rise.
Can America Repay its Debt?
Today, the US national debt is about $29.9 trillion, the equivalent of 128% of the GDP. In the meantime, the actual budget deficit exceeds $3 trillion. In the light of these facts, can America repay its national debt anytime in the future? Can it reduce the debt ratio to GDP? Can it even service its debt without borrowing more? The answers to all questions are No. America cannot repay its debt in thousands of years. The only way to get rid of its debt is to implement the Ramo Plan that calls for the liberation of all rich and poor nations from the debt burden at one time. (The plan is published on Researchgat.net; Liberating all Nations from the Debt Burden; it was also published by the Federal Reserve Bank of St. Louis on its website). This plan requires no state, taxpayer, or bank to pay a penny, and does not increase money liquidity by one dollar.
Nevertheless, America can reduce the severity of the debt problem and limit its negative impact on the economy. But to do so, the President and Congress need to acknowledge the magnitude of the problem and its negative impact on the economy and America’s credibility; they also need to realize that the traditional fiscal and monetary tools of economic and financial management are no longer workable. Therefore, following the mostly outdated policies will cause the debt problem to worsen.
The recurring congressional fight over raising the debt limit proves that politics in America comes before policy, special interests before the national interest, and ideology before the nation. When Democrats control the government, the Republicans become warriors whose job is to ensure that the Democrats fail; and when the Republicans are in power, the Democrats become warriors whose job is to ensure that the Republicans fail.
For the US to gradually reduce the debt as a percentage of GDP, the annual increase in the GDP must exceed the annual budget deficit. Thus, for America to repay its debt over the long run, it must have an annual budget surplus that exceeds the debt interest payments. According to the Congressional Budget Office, from 2001 to 2020 spending had continued to increase, while revenues had failed to close the growing deficit gap. Spending in 2020 reached $6.55 trillion, or 31% of GDP, while revenues were $3.71 trillion, or 17.66% of GDP. This means that the system needs to be fundamentally restructured.
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