The famous election slogan of Bill Clinton, “It’s the economy, stupid!” was very instrumental in catapulting the underdog Clinton to victory in the 1992 US presidential election.
The then incumbent President HW Bush had scored two big victories in the American forever wars for regime change against “dictator” Saddam Hussein of Iraq in 1991, and earlier in 1989 against Panama’s “dictator” General Manuel Noriega.
But despite these “outstanding” credentials, Bush senior was beaten hollow by Clinton in what had been described as a big upset.
Perhaps the Bush campaign then had misjudged the electorates who were aghast at the “known fact” that these two dictators were in the pay of CIA long before they became the presidents of their own country.
The vast sums of monies paid over the years to these two dictators, and still the vaster amount spent on the unnecessary forever wars on both Iraq and Panama to topple them would definitely have taken a toll on the US economy.
Thus, with or without the election sloganeering of the Clinton campaign, the writing was already on the wall for Bush to be a one-term president.
Fast forward to the current presidential election, the national debt is now a ticking time bomb. In January, US Treasury Secretary Janet Yellen said that the absolute level of US public debt looks like “a scary number.”
US government debt has reached an unprecedented level of $34 trillion at the end of December 2023. With a population of 341 million, this means a debt burden of approximately $100,000 per each American citizen.
Even those in their mother’s womb now will be born with a burden of carrying this $I00,000 debt. In 2023 alone, the national debt grew by almost $4 trillion.
This escalating debt pile is akin to a “death spiral” that only a “miracle” could extract the country from, economist and ‘Black Swan’ author Nassim Taleb said as quoted by Bloomberg.
Taleb defined the expanding US debt load as a “white swan,” meaning a risk event that is highly predictable and more probable than a “black swan” event, a metaphor describing an occurrence that comes as a complete surprise.
“So long as you have Congress keep extending the debt limit and doing deals because they’re afraid of the consequences of doing the right thing, that’s the political structure of the political system, eventually you’re going to have a debt spiral,” Taleb said. “And a debt spiral is like a death spiral.”
Taleb who’s also a former trader best known for publishing several bestselling books on economics, said white swans include the US deficit and the American economy that has grown more vulnerable to shocks than in previous years.
Such vulnerability is a feature of globalisation, as problems in one region can ricochet around the world.
When asked how the US “debt spiral” could play out, Taleb said, “we need something to come in from the outside, or maybe some kind of miracle,” adding this makes him “kind of gloomy about the entire political system in the Western world.”
One important thing to note is the federal government’s annual budget deficit, or its fiscal deficit, is a separate issue although related to the national debt.
This occurs when spending throughout the year exceeds government revenue from sources that include taxes on personal income, corporate income, and payroll earnings.
The national debt is primarily held by the American public, followed by foreign governments and US banks and investors. The latter includes both US nationals and foreigners.
Economists focus on the ratio of debt to a nation’s GDP precisely because it is an indicator of its sustainability. The US national debt-to-GDP was 120.13% at the close of the third quarter of 2023.
Then there is also sovereign debt issued by the government, usually in the form of securities.
The level of sovereign debt and its interest rates reflect the saving preferences of a country’s businesses and residents and the demand from foreign investors.
Governments acquire sovereign debt by issuing bonds, bills, debt securities, or loans from countries and multilateral organisations like the IMF.
Several private agencies often rate the creditworthiness of sovereign borrowers and the securities they issue.
Countries with stable economies and political systems are typically viewed as having better credit, allowing them to borrow on more favourable terms.
In August 2023, Fitch Ratings downgraded the long-term ratings of the US to “AA+” from “AAA” based on the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to “AA” and “AAA” peers over the last two decades with repeated debt limit standoffs and untimely resolutions.
January 1835 marked the first and only time all of the government’s interest-bearing debt was paid off, according to the Treasury Department.
President Andrew Jackson, who was suspicious of banks and did not trust the paper money they issued, liquidated the Second Bank of the United States, returning the government’s original investment plus a profit.
As a result, the government had a huge surplus of money, at $17.9 million, far greater than the actual government expenditures for the year. Congress divided the surpluses among the states, which were bogged down with debt.
After a lapse of more than a century, a second instance of a similar huge budget surplus occurred in 1998 during the Clinton administration.
Despite this, the US still experienced an increase in national debt of $5.66 trillion in 1999 from $5.53 trillion the previous year.
In 2002 when the “neo-con” administration of President George W Bush was in power, the US debt escalated to $6.23 trillion, mainly due to the War on Terror that Bush had unleashed.
By the time of the second Iraq war in 2003, US debt has escalated in 2004 to $7.38 trillion. In 2008 the national debt increased for the first time by more than $1 trillion.
2008 was also the year it reached a double digit trillion for the first time at $10.03 trillion due to the bank bailout crisis that engendered the Great Recession and the concomitant quantitative easing (QE) policy to fight the recession by artificially keeping interest rate very low.
In 2012, the US debt ballooned to $16.01 trillion due to a fiscal cliff, defined as a situation in which a country faces a combination of automatic tax increases and spending cuts, leading to a sudden reduction in the budget deficit.
Despite ending the QE in 2014 by the Obama administration, US debt in that year continued to rise to $17.8 trillion due mainly to the debt ceiling crisis.
In the last two decades, the US has added $25 trillion in debt, spending nearly $1 trillion more than it receives in taxes and other revenue every year since 2001 – in large part due to financing wars, tax cuts, emergency responses and expanded federal spending.
Currently, the debt ceiling has been suspended altogether as of June 3, 2023 till January 1, 2025 when president Joe Biden signed the Fiscal Responsibility Act of 2023 into law.
Previously, in December 2021, the debt ceiling was raised by $2.5 trillion to $31.381463 trillion, which lasted until January 2023.
This was because the Covid years has upped the national debt in 2021 to $28.43 trillion from $22.72 trillion in 2019.
It was during the debate on raising the debt ceiling that Treasury Secretary, Janet Yellen and the White House raised the spectre of a first ever default by the US.
“The US has always paid its bills on time,” she said and if Congress does not raise the debt ceiling, “America would default for the first time in history.”
Just a year later in 2022 after the debt limit had been raised, the national debt has bloated to $30.93 trillion, and by 2023 it was $34 trillion.
The hefty increase in 2022 and 2023 were mainly the result of reckless spending on project Ukraine by the Biden administration whose cabinet is dominated by the neo-cons.
In an attempt at a crushing strategic defeat of Russia and arming Taiwan to contain China which the US sees as its real strategic rival – all in the context of its forever wars of regime change – the Biden administration has nearly bankrupted the US Empire, saddling it with debts upon debts.
Jamari Mohtar is the Editor of Let’s Talk!, an e-newsletter on current affairs
