The past 18 months have seen the economy take a hiatus across many industries. Less commerce, less tax revenue, more government spending needed to keep the population going, means more borrowing. But let’s put some of this into context, historical context. It is not, thankfully, as bad as you may think.
Our national government debt is, currently, $23,000,000,000,000 (that’s $23 trillion). And that’s roughly 129% of our total national output called Gross National Product (GDP), for one year. Now, it is worth remembering that 18 months ago our ratio of debt to GDP was about 100%. So, it has increased 29%. But if you think about the Bush financial crisis of 2007-08 that Obama inherited, the debt ratio to GDP was about 62% before the crash. And then it rose to 105% in just 12 years — 15% of that after 2016.
The 2007-08 financial crisis was, in fact, bigger than the crisis over COVID. Why? Because the financial crisis was harder to deal with since every bank and all property was affected. Now as COVID wanes, the economy is quickly roaring back, and it won’t take years to get back to an even keel.
But there’s some historical context: Compare government debt ratio today to the ratio against GDP at the end of WWII when it was way over 118%… we came back from that calamity, but that took 10 years. We can do it again and again, but this time much faster.
And here’s another piece of good news (so far): A fair amount of the national debt is the Treasury borrowing money from itself. Yes, you read that right, the U.S. government borrows from itself. And they do that to stabilize the value of treasury notes and bonds (this keeps investors confident) and, when they pay it back or defease those bonds they do that slowly and usually just before issuing more expensive bond and treasury notes to people outside of the U.S.
To sum up: The government is borrowing money but the outlook of the ratio to GDP is nowhere near as bad, for quick recovery, as events in the past 80 years. As America gets back to work, it’ll all work out, especially when inflation makes a comeback (what, you thought banks and investors don’t want more profit?).
Writer Peter Riva, a former resident of Amenia Union, now resides in New Mexico.
