Debt

I am optimistic about the future of our nation, but I don’t see a way we can ascend to the next level of prosperity without significant economic pain.  The measures taken by national, state and local governments to climb out of the Great Recession of 2008 and the recent pandemic have been unprecedented in the history of our nation and no one has a playbook to return us to fiscal sanity.  Consider these three facts: In June, the national debt has climbed to $30.5 trillion, the Federal Reserve Bank, under the moniker of “quantitative easing,” has purchased $8.97 trillion in treasury securities by printing new money, and interest rates have been held below the rate of inflation for years, helping to give rise to the recent price run-up.

 

What does this all mean? Considering the national debt, the annual interest on $30.5 trillion debt paid in 2021 was 1.50%, totaling about $459 billion.  We know that in 2022 rates have increased substantially, with more promised rate increases to come.  If the 2022 average rate is 3.00% and the debt does not increase, the public will pay $918 billion in interest.  For context, The United States (“US”) tax revenue was $4.05 trillion in 2021, meaning interest on the national debt would consume about 22.7% of every tax dollar we pay.

 

At what average interest rate on US debt does debt service equal tax revenue?  The answer is 13.2%, which does not seem out of the question to a banker who started his career in 1979. On January 1, 1981, the national Prime Rate hit an all-time high of 21.5%; at that rate, interest on the debt computes to $6.6 trillion, well above annual revenues.

 

If all these numbers were not depressing enough, we know that Social Security and pension funds around the country are woefully underfunded; that number stands at about $6 trillion in the 50 states.  Is Bourbon County behind on infrastructure repair and investment? We all know the answer to that question, but we do not know the cumulative number nationwide of all local jurisdictions.  The number has to be staggering.

 

It is not enough to curse the darkness, so what can we do?  Start with your own house and business and get your money affairs in order, starting with getting out of debt.  Second, get involved in your local governments, and be a positive voice for financial responsibility.  We have to prepare our own jurisdictions for what is coming.  Third, elect politicians who are committed to fiscal discipline. Responsible debt reduction is a long-term process.  I am not saying that we should forego any investments in progress; rather, we need to look for ways to consolidate administrative costs so that more dollars can be put into debt reduction and investments that are important to our future.

 

It seems incongruous that a banker would advocate debt-free businesses and personal financial statements, but banks do better when their clients do better.  Talk to your banker or accountant to help you devise and execute a plan for lower debt and economic prosperity in the future.  Our county depends upon it.