Donald Trump is bankrupting America

America’s debt has doubled in a decade, and neither party seems to care

Daniel Hannan is Director General of the Institute of Economic Affairs.

This story should be leading every US bulletin. America’s national debt has risen to $40 trillion.

That sum is unimaginable, for the same reason that intergalactic and subatomic distances are unimaginable. Our brains are not configured to compute on such scales. Perhaps for that reason, the breaking of the $40 trillion barrier has received far less attention than it deserves.

So let me try, if not to contextualise the sum itself, at least to give you a sense of how it has grown. When Barack Obama left office in 2017, the debt stood at $19.95 trillion. That sum was abominable enough, and Republicans said so in no uncertain terms. They called it “an unprecedented legacy” for young Americans, and an “immoral” bequest.

Mitt Romney memorably pointed out that Obama had borrowed more than all his White House predecessors put together. Donald Trump was emphatic about Obama’s record. “Barack Obama has doubled our national debt. Doubled it.”

That was in 2016. Where are we 10 years on? Well, it turns out that Trump has now borrowed more than all his White House predecessors put together, including Obama. Trump, one might say, has doubled the national debt. Doubled it.

Both presidents might plead mitigating circumstances. Obama could point to the banking crisis, Trump to the pandemic. But neither man was ultimately prepared to make the unpopular decisions, including on Medicare and Social Security, that would allow the federal government to live within its means again.

What does a $40 trillion debt mean in practice? In the end, it can mean only one of three things: tax rises, spending cuts or inflation. Inflation is the preferred solution for Third World governments. As the value of a currency falls, so do its government’s liabilities and so, too, do its people’s savings. Inflation is thus a sneaky tax, a thief in the night that transfers wealth furtively from citizens to the state.

Inflation might be Trump’s preference. It would chime with his complaints about an overvalued dollar. It would chime, too, with his Third World vibe: strongman government, colossal monuments, territorial expansionism, tariffs, a coterie of friends and family members getting rich, renamed geographical features, cuddling up to foreign autocrats.

Photo by Alexander Grey on Unsplash

With a debt of such magnitude, though, inflation will not be enough. The federal government cannot technically go bankrupt, because there is no higher authority to administer the bankruptcy. In practical terms, though, we should think of it like a bankruptcy. A lot of people who are owed money by the federal government are going to take a haircut, including bondholders and pensioners.

When a company or a bank collapses, the priority is to get through the bankruptcy as quickly and painlessly as possible, incentivising creditors to accept partial repayment rather than hold out and risk losing everything. The same principle should apply here, and it is going to be painful.

It would, of course, be a lot less painful if Americans were prepared to make cuts now. Curiously, though, the Tea Partiers who worked themselves into such a frenzy under Obama have almost completely vanished from the scene. Did they give up in despair because the debt got so big? Or was their entire movement, as Lefties claimed at the time, just an anti-Obama protest that happened to alight on tax as a shorthand way of expressing discontent?

Either way, in the absence of a fiscally conservative counter-movement, all the pressure will be for particular congressmen to secure particular spending increases for particular constituents, right up until the moment when the money runs out.

To some degree, it is a global problem. We Brits coincidentally broke the £3 trillion national debt mark at the same moment that the United States broke through $40 trillion. In proportionate terms, our two debt levels are similar and, in both countries, no one seems to care. My theory is that the lockdown, with its accompanying furlough schemes and grants, convinced voters that there really was a magic money tree.

Still, as Ayn Rand observed, you can evade the consequences of your actions, but you cannot evade the consequences of evading the consequences. A reckoning is coming. As my biblical namesake Daniel put it to an earlier leader, “God hath numbered thy kingdom and finished it. Thou art weighed in the balances and art found wanting.”