Feb. 3, 2022

USA Government Debt Hits $30 Trillion.

Government spending, it's something that we've become inured to. We all know that excessive spending, and its subsequent debt, is bad.

But we're resigned to it. It seems so inevitable. It also seems like there is absolutely nothing that we can do about it.

Perhaps it's worthwhile to take a step back and look at just how we got where we are.

My first memory of Government Debt was during the Presidency of Lyndon Johnson. The country was mired in the Viet Nam War. A war that was literally sucking the lives of brave young men abroad, and sucking the wealth of this nation here at home.

So, in the middle of the War, Johnson proposed a massive social program, called the Great Society. A program that promised to be incredibly expensive. One that would reduce the nation's fortunes even more.

And it's important to note: that all of this Public Debt, the $30 Trillion Dollars, comes from public programs proposed by Politicians promising to promote the “public good.” Inevitably lie number one.

Now Johnson promised that he had discovered a way to “pay for both the War and the Social Spending.” And that was lie number 2. None of these Politicians ever have a way to pay. And what's more, they will be long gone, when those bills come due.

In fact, today's $30 trillion debt, includes money owed from the Johnson era.

And those are the two fundamental realities that we have to grasp. Fundamental reality number 1: we are spending at levels that can never be paid for. And fundamental reality number 2: The politicians promising these programs to have no “secret sauce” that will get us out of debt.

So I say this all by way of background. Things that we all realize when we take a moment to think about it.

So yesterday, upon our achieving this incredible milestone of “$30 Trillion Dollars in Public Debt, two things occurred which are noteworthy and will give us great insight into the thinking up on Capital Hill.

The first was the observation by former Chairwoman of The Federal Reserve, and current Secretary of The Treasury Janet Yellen.

Secretary Yellen began her discussion with the Wall Street Journal, by observing that our debt should be evaluated in light of the current interest rate environment. And with historically low-interest rates, our debt is very “manageable.” Quote unquote.

Manageable, I suppose at the margin. But I don't need to remind Yellen, do I? That the Federal Reserve will shortly begin raising interest rates. And so, step by step, make that Public Debt less and less manageable to use her word.

Now a sidebar: rumor is that Yellen may be leaving shortly. And so, again in the parlance of Washington, any comments are limited by these politicians' terms in office.

But she is right to this extent, low interest rates do make “financing” debt easier. Although that has little to do with ultimately paying off that debt.

But while we're on the subject of financing the debt. Yesterday also came to the announcement by Treasury, that they would Cut the size of long-term bonds that they're going to issue.

This strategy was first instituted by James Rubin, then Secretary of the Treasury Under Bill Clinton. It's a strategy that goes like this. Short Term Bonds have lower interest rates than long-term bonds. It's the yield curve, the longer maturity, the higher the interest rate.

So what Treasury does is issue more short-term debt, thus lowering the overall interest demand for the entire government. Sounds like a good idea, until you realize that in times of rising rates like we're headed into, those short-term bonds will need to be rolled over at much higher interest.

But again, that is likely after the current group of politicians will be gone.

Short-term strategies like this may yield short-term success but cost dearly over the long run.

But it's just the kind of management that we see out of Washington. No real program to reduce our $30 trillion in debt.

Instead, just short-term financial tactics to help temporarily finance this ever-growing burden.