In the very moment that President Obama signed the debt-ceiling deal, the national debt shot up by $238 billion. That’s over ten times the amount of deficit reduction included in the deal for this year.
That bring our total national debt to $14.58 trillion, which is an important milestone, because it’s larger than the $14.53 trillion gross domestic product of the United States.
We are now officially one hundred percent in the hole.
Fox News notes this has happened once before:
The last time the debt topped the size of its annual economy was in 1947 during World War II, according to AFP. But the deficit at the time was driven by war spending — a degree of spending that ebbed once the war ended. The nation’s current deficits were exacerbated by the wars in Iraq and Afghanistan, but are also driven in large part by entitlement programs that will not shrink without fundamental changes to their structure — officials point as well to lost revenue from the recession, tax breaks and increased domestic spending as contributors to the current deficit hole.
In other words, wars end, but dependency is forever. It’s not really accurate to describe the fresh trillion in deficit spending authorized this week as “loans.” Loans get repaid. The government is not “borrowing” the money needed to finance our gigantic budget deficit, because it has no intention of ever repaying it.
In fact, the Establishment position advanced during the debt-ceiling debate is that preventing the national debt from growing is absolutely impossible. Never mind repaying it – Americans were told we can’t even stop it from getting bigger. The Cut, Cap, and Balance Act was tabled without a vote. The next $1.5 trillion load of debt coming our way requires only a vote on a Balanced Budget Amendment, not a guarantee of passage.
Sherli Looi of Forbes provides some perspective:
This is a recipe for disaster. An insolvent nation with no surplus prospects cannot buy time. The economic deficits, debt servicing burden and debt of the nation will accelerate, fueling social unrest until a sovereign default or a debt restructuring occurs, as in the case of Argentina in 2001. Or until investors finally recognize that the risk premium ratio makes restructuring inevitable.
She was talking about Greece, mind you, but we’re cooking up the same recipe. The debt-to-GDP ratio in Greece is currently 150%, but according to current projections, it will pass 200% within five years, and hit 475% by 2030.
This is the Era of Black Hole Government, in which debt becomes an accelerating death spiral, because the size of the national debt actually becomes an argument against reducing it. Why did we need such an urgent increase in the debt ceiling? Because we’re paying forty billion dollars a month in interest on the national debt. Leave the debt ceiling alone, freeze all spending, and you’d have to cut $40 billion from federal spending per month, just to keep the national debt stable at $14.3 trillion.
If you actually cut spending – not the piddly reductions in the rate of growth included in this week’s Congressional compromise – you would have to shut down entire departments of the government, thus destroying thousands of well-compensated public-sector jobs “created” by all that irresponsible deficit spending over the past few decades. In fact, merely cutting the government growth Barack Obama has personally supervised would destroy over one hundred thousand jobs. To the political class, including all but a few of the most serious Republican deficit hawks, that is unthinkable.
That’s how a black hole forms: its mass becomes so great that collapse is inevitable. Many economists maintain that an inevitable death spiral begins at 90% debt-to-GDP. We’re way past that now, and our great budget battle – the first time an increase in the debt ceiling has ever been seriously challenged – produced a 15% reduction in the rate of debt increase, under the best-case scenario… which is, let’s face it, a bit of a long shot.
Even if all the spending reductions promised in the Budget Control Act of 2011 are achieved, this debt was piled up by digging holes in the private sector, and they are now filled with government. The crushing weight of this insolvent State will continue to crush the economy. Our gross domestic product is not keeping up with population growth very well. The debt-to-GDP ratio can grow by increasing debt or reducing GDP, and we’re doing both. If debt becomes large enough, reduced GDP follows naturally, and the death spiral picks up speed.
It’s a pity we don’t insist on a political class that understands this. They most certainly do not. The President is already prattling on about spending more government money on “job creation” and building an “infrastructure bank.” Meanwhile, our financial infrastructure is rotting away.
Welcome to the event horizon. The ride becomes much more turbulent from here on down.