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Endless Debt

July 6, 2021

It’s time to discuss a question I’ve been asking for 40 years – when will our national debt create a financial crisis?

This topic became interesting to me when Ronald Reagan was president because I was a big Reagan supporter. That is, I was a supporter until he began running annual budget deficits. Those deficits ballooned our national debt to more than $2 trillion by the time he left office.

Those were the first dominoes to fall. As I write, the U.S. is $28.5 trillion in the hole.

Now President Biden’s first federal budget proposal calls for $6 trillion in spending for fiscal year 2022. On top of that, his 10-year budget proposal shows federal budget deficits averaging $1.3 trillion per year for the next decade.

That means $13 trillion or more will be added to the national debt in the next 10 years. At that point, it will likely eclipse $41 trillion.

Do you think that would be enough debt to tank the bond market, throwing us into a financial crisis?

The national debt has exploded from just under $5 trillion in 2000 to, if the Biden plan runs its course, $41 trillion in less than 30 years. This has never happened. No one knows if the bond market can handle it, or if it will finally crash.

You may recall President Obama more than doubled the national debt while in office and the bond market remained afloat. But how will quickly adding more than $35 trillion in debt impact the U.S. dollar? It’s the world’s reserve currency because everybody believes investing in our debt means being repaid in full, plus interest.

What would shake that faith? I don’t want to find out. It begs the question – is there no limit to how much the U.S. can borrow?

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