Upon the news this week that America\u2019s gross national debt now exceeds $31 trillion<\/a>, Jason Furman, former director of the National Economic Council under Barack Obama, told The New York Times<\/a>, \u201cWe were sort of at the edge of \u2018OK\u2019 before, and we are past \u2018OK\u2019 now. The deficit path is almost certainly too high.\u201d<\/p>\n While Furman is rightly alarmed, you can practically taste the public\u2019s profound ambivalence. For decades, the growing national debt has been the esoteric preoccupation of auditors and monetarist conservatives (who are themselves an endangered species within the increasingly populist Republican coalition).<\/p>\n As interest rates continue to rise, the administration shows little willingness to curtail its profligacy.<\/p>\n<\/div>\n The lack of concern is a luxury, and luxuries are available only to those who can afford them. As long as interest rates were low and the U.S. dollar remained the world\u2019s prohibitive reserve currency, Americans could afford to avoid worrying about the balance on the national credit card. But those conditions are changing, and our assumptions must change with them.<\/p>\n When Democrats in Congress spent the better part of the last two years spending trillions on various projects (and with every intention of spending much more), supporters of this unprecedented orgy of deficit spending<\/a> argued that it was as good a time as any to borrow. As Furman himself, among others, said last year<\/a>, \u201cInterest rates remain really low,\u201d so the federal government could borrow trillions \u201cwithout causing a whole lot of problems\u201d to the broader economy.<\/p>\n Yet now, as interest rates continue to rise, the administration shows little willingness to curtail its profligacy. Joe Biden signed the Inflation Reduction Act in August, which, the law\u2019s name notwithstanding, is expected to increase inflationary pressure on the economy in the short-term, according to a University of Pennsylvania\u2019s Wharton School<\/a> analysis. That\u2019s because the legislation front-loaded $485 billion in spending programs and tax breaks while counting on health care savings and additional tax revenues from a beefed-up IRS to reduce the deficit over 10 years. Most of the promised savings aren\u2019t expected to be measurable until 2027<\/a>. These gestures convey the necessity of deficit reduction without delivering it in a timely way.<\/p>\n Meanwhile, the interest payments on those vast sums and whatever else the government spends in a year keep growing. Those payments are added to a pile of must-spend outlays we appropriately refer to as \u201cnondiscretionary spending.\u201d Unlike, say, the defense budget, the interest the nation owes its creditors must be serviced. Every dollar we borrow at higher rates today must be paid back at those higher rates.<\/p>\n Add to the interest other nondiscretionary items, like entitlements (Social Security, Medicare and Medicaid), which already eat up trillions of the annual budget and are on a trajectory toward insolvency<\/a>. With the interest on the debt already forecast to become the most expensive item on the federal budget and entitlement programs on an unsustainable path, the Congressional Budget Office<\/a> projects $100 trillion in baseline deficits over the next 30 years \u201cif current laws governing taxes and spending generally did not change.\u201d<\/p>\n And that was before the Federal Reserve\u2019s rate hikes, a concept that\u2019s all but unheard of for younger Americans. It\u2019s been decades since the U.S. has experienced a financial crisis that couldn\u2019t be remedied with loose monetary policy. From the 9\/11 attacks<\/a> to the 2008 economic collapse<\/a> to the pandemic<\/a>, policymakers have chosen lower interest rates to increase liquidity and boost investor confidence.<\/p>\n That\u2019s how a debt crisis would unfold: slowly at first, then all at once.<\/p>\n<\/div>\n Not that higher rates by themselves will shake the public out of its sense of complacency when it comes to America\u2019s ballooning debt. That would take a shock. But such an event isn\u2019t unimaginable.<\/p>\n The Congressional Research Service<\/a> estimates today that global central banks maintain about 60% of foreign exchange reserves in U.S. dollars. And 90% of transactions in foreign exchange markets are conducted in dollars. This is a mutually beneficial relationship: The dollar\u2019s general stability hedges against volatility, and the strong demand for U.S. Treasury bonds helps hold down private borrowing costs.<\/p>\n The U.S. benefits tremendously from this privilege, and our near-peer competitors abroad resent it. Russian President Vladimir Putin has long lobbied for the creation of a parallel reserve currency that would bundle Russia\u2019s ruble with the currencies of regional powers like Brazil, South Africa, India and China. Russia is in bad odor these days, but the desire abroad for a competitor to the dollar is widespread. In 2015, China created its own interbank payment system<\/a> as an alternative to SWIFT (the Western-backed global standard for interbank payment messaging), and Beijing has enjoyed some success in its efforts to lobby Saudi Arabia to accept yuan instead of dollars<\/a> for some oil purchases.<\/p>\n A long-forecast debt crisis in America is forever just over the horizon, so it is easy to compartmentalize the risk. But the conditions that prevail today are unnerving: an unserviceably large yet growing debt, tightening monetary policy, obstinately loose fiscal policy and global foes eager to undermine the dollar\u2019s unique position.<\/p>\n As Financial Times analyst Ken Rogoff wrote in 2010<\/a>, \u201cIt is folly to ignore the long-term risks of already record peace-time debt accumulation.\u201d Even a \u201cbenign market environment can darken quite suddenly as a country approaches its debt ceiling,\u201d and America \u201cis likely to face a relatively sudden fiscal adjustment at some point if it does not put its fiscal house in order.\u201d And that\u2019s how a debt crisis would unfold: slowly at first, then all at once<\/a>. To channel F. Scott Fitzgerald\u2019s sense of foreboding on the eve of his age\u2019s own financial disaster, a day will come when the crisis evolves from hypothetical to imminent. \u201cBut by that time, we were all pretty well committed,\u201d he wrote<\/a>. \u201cWe would all have one more.\u201d<\/p>\n<\/div>\n\n Upon the news this week that America\u2019s gross national debt now exceeds $31 trillion, Jason Furman, former director of the National Economic Council under Barack Obama, told The New York Times, \u201cWe were sort of at the edge of \u2018OK\u2019 before, and we are past \u2018OK\u2019 now. The deficit path is almost certainly too high.\u201d …<\/p>\n","protected":false},"author":1,"featured_media":36075,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[161],"tags":[],"_links":{"self":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/36074"}],"collection":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/comments?post=36074"}],"version-history":[{"count":0,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/36074\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media\/36075"}],"wp:attachment":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media?parent=36074"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/categories?post=36074"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/tags?post=36074"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![](\"https:\/\/media-cldnry.s-nbcnews.com\/image\/upload\/t_focal-760x428,f_auto,q_auto:best\/mpx\/2704722219\/2022_10\/1664970352068_tdy_news_7a_national_debt_221005_1920x1080-hdh8j2.jpg\")
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