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The Federal Debt, Unpack Your Adjectives

The Federal Debt, Unpack Your Adjectives

February 12, 2024

As we enter 2024, it seems that more people are becoming aware and/or concerned about the level and the sustainability of our national debt. I know that I am getting questions from clients about this regularly. It is a complicated issue that I am going to try to address in a three-part series. There is a lot to learn about, so let’s dig in.

I realize that a lot of people learn better with visuals and catchy tunes to help them remember complex topics. As an elementary school-age child, one of the tools that helped me learn about grammar, history, science, or mathematics was Schoolhouse Rock. I made sure that my sons Shane and Zach were each introduced to these fun learning vignettes when they were the same age.

Source: Wikipedia

We are going to start with Unpack Your Adjectives. This lesson starts with a young girl and her turtle embarking on a camping adventure. Along the way, they use many adjectives to describe the people places, and things they encounter.

For those of you who have three minutes to spare, a link to the YouTube video is below. Warning, if you remember this from your childhood, you will probably be humming or whistling this tune all day.

Schoolhouse Rock! Unpack Your Adjectives

Unfortunately, there are MANY ADJECTIVES that we could use to describe the amount of debt the US government has run up over the last 20 years. We will start with the adjective FRUSTRATING.

Source: YouTube

As a reminder, in early 2001, our national debt was just over $5 trillion. At the time concern was growing that we would never be able to pay down a debt level so high. There was some hope, as we had run budget surpluses during the previous four fiscal years. This led Federal Reserve Chairman Alan Greenspan to state in congressional testimony that the national debt could possibly be paid off by the end of the decade.

Source: US Treasury Department

In looking at the chart above, you will see that instead, the debt has grown exponentially. It was exacerbated greatly by the Great Financial Crisis of ’08-‘09 and the substantial Covid pandemic stimulus spending of the early ‘20s. FRUSTRATING is the only word I can think of (that I can say in print) when you realize that around the turn of the millennium, we thought that our country might be debt-free in just a few years. Yet here we are today.

We will turn to our second adjective, WORST. As the national debt grew from $10 trillion to $19.5 trillion during the eight years of the Obama administration, it did not seem like our rising debt level was causing much concern. This was largely because interest rates were being held artificially low by the Federal Reserve Bank. As a reminder, the Fed kept its overnight lending rate at 0% from December 2008 to December 2015.

Source: YouTube

This meant that, even though our national debt was doubling, our interest costs stayed low and did not consume a large portion of the annual budget. Interest rates were again cut back to 0% as the Covid pandemic took hold. Subsequently, rates have risen significantly since early 2022, and the amount of interest being paid on our debt is rising quickly. It is expected to continue that seemingly unsustainable path for the foreseeable future.

This brings us to our final adjective for the day, SCARY. As the government pays higher interest rates on this larger amount of outstanding debt, it means that money is not available to pay for other important programs and priorities.

Source: YouTube

As you can see in our final chart today, in fiscal 2023, the amount of money now being spent on interest costs is approaching the amount of money spent on things such as Medicare or national defense. It is only a matter of time before interest costs become the largest line item in our annual budget.

This means that we are not getting any benefit from billions of tax dollars that we pay annually. What is even more SCARY, is that there does not seem to be political will on either side of the aisle to deal with the reality that our interest costs will soon exceed $1 trillion annually.

I thought that unpacking our adjectives was a good place to start this discussion. I will use other lessons from Schoolhouse Rock to discuss additional facets of this dilemma. We will visit My Hero Zero and Interjections!, which may be the only appropriate way to finish such a difficult topic.

I will try to have some fun with this along the way. Hopefully, the backdrop for these blog posts will give you something to smile about even though the content will not. Perhaps it will help you remember these issues more clearly as we start to work through the 2024 election season. As always, the CFPs of Impel Wealth Management are here to provide guidance, perspective, and wisdom for you as we continue “Moving Life Forward”.

© 2024 Jesse Hurst

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