Understanding America’s National Debt.

Currently America and it’s citizens owe roughly 21.48 trillion dollars, some of this debt is actually owed to itself. How is that you may ask? Well some of our federal agencies actually operate in the black and take in more than they spend, unfortunately since other agencies operate at a loss our government will take the surplus from one agency and use it to cover the short fall of another, this is basically just intra-agency accounting and moving funds around on the books. The other debt is owed to public and private entities. Other foreign governments loan America money and in return get Treasury bonds, the same goes for individual investors/citizens. Currently individual investors as well as large financial institutions such as banks, mutual funds, insurance companies, as well as large public companies hold the majority of the debt. How did the national debt originate?

person signing contract paper

The United States actually began incurring debt before it became a nation, leaders of the colonies borrowed money from France and the Netherlands to fund the Revolutionary War and their independence from Great Britain. The Continental Congress, which would come to be known as the  U.S. Congress, did not have the power to tax citizens so the debt continued to grow. By 1790, it was over $75 million, which represented a 30 percent debt-to-GDP ratio. When Andrew Jackson took office in 1828, the national debt was a massive $58 million,  Jackson called the debt a “national curse.” By selling off federally owned land in the West, Jackson managed to pay off all the national debt, however within a year  an economic recession led the government to start borrowing again and our country has never been debt free since, but how did we get over 21 trillion dollars in debt?

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One way to measure debt is to compare it to (GDP) Gross Domestic Product, GDP is the total revenue created within a country, historically America has hovered around the 50% debt to GDP. Only Presidents Andrew Jackson, Martin Van Buren, John Tyler, and Franklin Pierce left office with the debt at 1% or less of GDP.  In percentage terms, Roosevelt increased the national debt more than any other president. He added $236 billion, increasing the debt by over 1,000%, this was largely due to his instituting large government aid programs during tough economic times. Here is a quick list of the recent presidents during my lifetime and the debt that was added during their presidential terms.

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Ronald Reagan – $1.8 trillion – 49% of GDP

George H Bush – $1.58 trillion – 62% of GDP

Bill Clinton – $1.396 trillion – 54%  (only recent president to not run country at a budget deficit, left office with a $36 billion surplus)

George W Bush – $5.849 trillion – 77%. of GDP

Barack Obama – $8.335 trillion – 105% of GDP (Added more debt than any president ever)

man person suit united states of america

Donald Trump – Since he is still President we can’t actually say what the debt will be from his presidency. We do know that Trump promised to eliminate the debt in 8 years and actually dropped the national debt by over a $100 billion but since then it has increased. Trump has made some massive tax cuts which has stimulated the economy, this should lower the debt to GDP as a percentage but historically lowering taxes raises federal debt due to less funds coming in to operate the government on.

silhouette of statue near trump building at daytime

So what is the answer to eliminating the National Debt? Well first we need to be able to operate the government without going into debt, the annual cost of running the government is around $4.147 trillion , of which we run close to $700 billion in the red, otherwise known as a budget deficit, meaning we spend $700 billion more per year than we take in and that number keeps rising each year. So what do we spend all that money on, check out my blog post “What does it cost to be the Boss” to get an idea of what America spends your tax dollars on. I say your tax dollars, because the only way the Government has to bring in money to operate is through taxing us it’s citizens. Now taxes aren’t a bad thing as long as we get something out of them, think military and police protection, sewers, highways, public schools, etc…. but the truth is that if you want to get out of debt you have to spend less than you bring in. Just like us as individuals have to make tough decisions everyday about how we spend our money, the officials we elect to represent us need to make some tough decisions on how they spend our money. Tough decisions include what you are willing to live without and what you are willing to sacrifice in the present to be better off in the future. Imagine if America got on the Financial Independence bandwagon and learned to postpone instant gratification…….. 

Thanks for reading, if you liked the article let me know.

Thanks,

ChefonFIRE

 

 

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