[OPINION and ANALYSIS]
According to “FRED” , the acronym for Federal Reserve Economic Data, the Federal Reserve Bank’s on-line data source, and keeper of important economic statistics, the amount of total federal debt as a percentage of GDP (gross domestic product) of the United States has actually decreased since the last year of Donald Trump’s presidency. If we read FRED’s chart correctly, in 2020 the total federal debt was 134.8 % of America’s GDP. [GDP can be looked at as a measure of the size and health of the American economy.] However, FRED’s most recent statistics indicate that presently that figure is significantly lower. In short, right now (May 2023), total federal debt stands closer to 120.2 % of this nation’s total GDP.
If the Fed is correct, then why are Republicans, now willing to risk the once unheard of thought of a federal default on its debt? After all such a default would very likely cause rise in all other interest rates, a loss of U.S. prestige, a probable loss in value of the dollar thus making all imports more expensive, and a likely recession? While Republicans do have some legitimate concerns about the size of the federal debt, the integrity of social security and various aspects of federal budget deficits, isn’t an unwillingness to raise the debt limit to fund programs that have already been Congressionally approved, like killing the patient so he won’t get sick? Why did we not hear Republicans complain more about this back in 2020 when Trump was President? Does this have anything to do with making life difficult for a Democratic President in the run up to the 2024 election?
Make no mistake. A default on the payment of federal debt would be cataclysmic. The interest rate that we pay on those notes and bonds sets a vital economic standard and has traditionally been considered the virtual “risk’free” rate by banks, stock markets and financial professionals around the world. The significance of that fact is that many, if not most all other interest rates both here around the world are based on or largely influenced by the interest rate we pay on our federal notes and bonds. If we default the interest rate we pay on all future federal debt will go up because we will be considered to be less credit worthy as a nation, and bond buyers will thus not buy federal treasury notes and bonds unless our government pays a higher interest rate than it has in the past.
Thus a default by our government could very well trigger a snowballing effect that ironically would make balancing future budgets even more difficult because the interest payments that we would have to make future on federal debt would grow even though no actual additional moneys were being spent on defense or other programs. In essence, causing a default can actually make balancing future budgets even more difficult, thereby causing future political instability. Having a stable government is vital to the maintenance of a healthy democracy.
In short, a federal default will thus have wide and far reaching and dire consequences both here and in every corner of the globe.
So why do the Republicans want to play political football with it by refusing to raise the federal debt limit?
David Dixon Lentz
© Copyright 2023; David Dixon Lentz; All Rights Reserved
Artificial Intelligence software had no part in the writing of this article.