Let us stand back for a moment to marvel at the national debt. This is a Mount Everest of obligations that has fetched up in the news today at a record $31 trillion. This has been heaved up during the era of fiat money with astonishing speed and is now 75 times higher than it was 1971, when we abandoned the Bretton Woods monetary system. And we’re fixing to pay it back with dollars valued at a fraction of what they used to be valued.*

In 1971, when President Nixon closed the gold window, bringing America into the age of fiat currency, the debt was but $412 billion, and a mere 35 percent of the gross domestic product. Nothing to sneeze at, to be sure, but child’s play compared to today’s red ink. With the economy currently generating around $25 trillion in output each year, the current debt now stands at 125 percent of GDP. 

That figure puts America in the company of famously profligate countries like Italy, with a national debt of 150 percent of its economy, and Greece, whose debt is 193 percent of its GDP. The United Kingdom, too, has yielded to the borrowing impulse, with a national debt at 191 percent of GDP. America still ranks in the minor leagues compared with the champion debtor-nation, Japan, which has racked up a debt that is 216 percent the size of its GDP.

Such milestones may yet be reached by America, despite historically having had less enthusiasm for national indebtedness. Thos. Jefferson placed “economy” one of the “most important republican virtues,” and ranked the “public debt as the greatest of the dangers to be feared” (his own debts were another matter). As president, he was so eager to cut the debt that he slashed military spending, leaving America unprepared for the War of 1812.

That war doubled the national debt. President Jackson, along with his campaign against the Bank of the United States, decried the debt as a “national curse,” and launched a campaign of spending cuts — and federal land sales — to pay it off. By 1835, he had succeeded, and then some, distributing the surplus among the states. Yet Jackson’s anti-debt zeal backfired, when the panic of 1837 struck and forced Uncle Sam to start borrowing again.

Alexander Hamilton would have balked at these attempts to quash the debt, which as early as 1789, he envisioned as “a national blessing” — provided “it is not excessive.” The central bank that Jackson terminated was, along with the national debt, Hamilton’s brainchild, as he sought to use federal debt as a form of “liquid capital,” as Stanford law professor Michael McConnell calls it, to tie the states together, and irrigate the national economy.

The scale of today’s debt, though, would challenge even Hamilton’s enthusiasm for federal borrowing. Unless the debt was “remolded into such a shape as will bring the expenditure of the nation to a level with its income,” he feared, “the finances of the United States will never wear proper countenance.”  He was particularly concerned that “Arrears of interest, continually accruing,” would “have an evil influence on public credit.”

That’s precisely the concern of the Committee for a Responsible Federal Budget (chaired by Mitch Daniels and Leon Panetta). It fears that as the Federal Reserve raises interest rates, the annual carrying costs on the federal debt could triple, to $1.2 trillion by 2032 from $400 billion this year. That would mean within a decade America could be spending more each year on interest on its debt than it does on the national defense. 

There’s an old saw to the effect that a Congress run by Republicans and a White House occupied by a Democrat is the path to fiscal probity. That arrangement led to federal budget surpluses in the late 1990s under President Clinton. In that case the results of the midterm elections this year — we don’t want to get ahead of our skis here with a prediction — could be good news for advocates of a start on reducing the national debt.

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* In gold.