On February 1st the Treasury Department announced that America’s national debt had topped $19 trillion for the first time ever – and no one seemed to notice. That’s more than $58,000 for every person living in the U.S. today including children. The latest addition of $1 trillion to our national debt – from $18 trillion to $19 trillion – happened in just over 13 months. 

When President Obama took office, the national debt was at $10.6 trillion; since then the debt has soared by $8.4 trillion during his seven years in the White House — a record pace that the Congressional Budget Office (CBO) says is likely to continue.

You will recall that President Obama ran annual budget deficits in excess of $1 trillion in 2009-2012, the largest expansion of debt in history. Even though the deficits have come down significantly in recent years – $483 billion in FY2014 and $439 billion in FY2015 – the CBO projects that the annual deficit for FY2016 will rise to $544 billion. The CBO projects the deficit to rise every year going forward and will top $1 trillion again by FY2022 and will remain above $1 trillion indefinitely.

Debt Held by the Public and Intra-Governmental Debt

The Treasury Department and the CBO break down the national debt into two distinct categories:

  • “Debt Held by the Public” (approx. $13.7 trillion) represents money owed to the non-government holders of Treasury Bonds, Treasury Notes and Treasury Bills outstanding, which includes individual Americans, corporations, foreigners and foreign governments.
  • “Intra-Governmental Debt” (approx. $5.4 trillion) is a term used to define the flow of money and government securities between the federal government and specific government agencies and government trust funds, the largest being the Social Security Administration.

These agencies hold a different type of debt referred to as Government Account Series (GAS) securities. Intra-Governmental Debt is incurred when the government borrows from federal trust funds to help fund current operations.

The government and entities like the CBO argue that Intra-Governmental Debt should NOT count toward our official national debt because, they say, it is money that we owe to ourselves.

To that I say, hogwash!

These GAS securities are just as much an obligation of the federal government as are Treasury securities held by the public. GAS securities mature and are retired, just as with Treasuries. And new GAS securities must be issued to replace them.

The problem is that when the Treasury and the CBO and the financial media talk or write about the size of our national debt, they generally only refer to the debt held by the public. We often see comparisons of the national debt as a percentage of Gross Domestic Product (GDP). Yet in almost all of these comparisons, the source is only using the debt held by the public, not total debt.

For example, GDP was approximately $17.9 trillion in 2015; debt held by the public was approximately $13.5 trillion; so debt held by the public was only 75.6% of GDP. Whereas, our total national debt of $19.0 trillion is 106% of GDP at $17.9 trillion.

By this flawed method of calculation, these government entities (Treasury, CBO, etc.) significantly understate our national debt as a percentage of GDP. The CBO, for example, projects that the US debt-to-GDP ratio will only rise to 103% by 2040! Yet as we just saw, if we use total debt, then the ratio is already at 106%.

You might be wondering why these government entities want to deceive us by using only debt held by the public in their calculations. As noted earlier, they apparently believe that Intra-Government Debt is debt that we owe ourselves and should not be included in the national debt. But more importantly, they don’t want us to know how large our total debt really is, and they want to keep the debt-to-GDP ratio below 100% for as long as they can.

There is a great deal of history which shows that when a country’s debt-to-GDP ratio exceeds 100%, bad things start to happen. It’s that simple.

If you want to see where our national debt is in real time, visit http://www.usdebtclock.org 

Whatever Happened to the Debt Ceiling/Debt Limit?

At the end of October last year, President Obama and congressional leaders struck a controversial deal to suspend the debt limit and set the federal budget for the next two years to end yet another threat of a government default. The debt ceiling suspension is until March 15, 2017. In the meantime, the government can spend as much as it wants – no limits.

Is It Possible to Stop America’s Federal Debt Explosion?

I think about this question a lot. I’m sure many of my conservative clients and readers do too. Many of us worry if the nation is now past the point of being able to reign-in our deficit spending, run surpluses and start to reduce our gargantuan national debt.

As noted above, our national debt is now at 106% of GDP – not that the government will admit it. So realistically, is there anything that can be done to stop our runaway debt now that almost half of the population receives some kind of government benefits? And this number will only move higher as our population ages.

The answer is, I don’t think so. The federal budget goes up every year, no matter who is in the White House or which party controls Congress. Every four years, conservative presidential candidates promise to reign-in federal spending, cut the deficit and even balance the budget, but nothing is done.

President Obama has proposed the largest federal budget in history for FY2017 at $4.15 trillion. He may not get all of it, but mark my words: the ultimate budget for FY2017 will be higher than that for FY2016. It always goes up no matter what.

Today, the government is selling 10-year Treasury Notes yielding around 1.8%. That is a testament to the confidence foreigners have in America’s ability to repay that debt. Yet these same holders of our Treasuries have to know that our national debt is the highest in the history of any country in the world.

Likewise, they have to know that our annual budget deficits, which have declined from over $1 trillion in 2009-2012 to $439 billion in FY2015, are on-track to go back above $1 trillion a year in 2022 (if not sooner) and continue above $1 trillion a year indefinitely thereafter.

At the end of the day, the question is not really whether we as a nation could stop increasing spending and start to reduce our national debt. We won’t. The real question is how long will foreigners continue to finance our profligate spending by buying and holding our government debt paper?

I don’t know the answer to that question. I would never have thought it could last this long. But when that day comes, it’s game-over.

Gary D. Halbert is the president and chairman of Halbert Wealth Management, Inc. His Forecasts & Trends Weekly E-Letter may be obtained free of charge by subscribing at www.halbertwealth.com