The U.S. National Debt Crisis

America’s surging national debt is saddling future generations with trillions of dollars in extra costs, but there’s rising alarm that the borrowing is fueling today’s crisis of affordability, too. It adds urgency to the reform effort of the new Fed chairman, Kevin Warsh. The federal government’s overspending since 2015, the Atlantic’s Martha Gimbel says, has “raised Treasury yields by a full percentage point,” making it more costly for Americans to borrow. This adds tens of thousands of dollars to the cost of, say, mortgages. Feature, Ms. Gimbel reports, the case of someone “taking out a 30-year mortgage at last year’s median home price.” The debt-fueled increase in long-range interest rates, Ms. Gimbel adds, raises the cost of borrowing by roughly $2,500 a year, or about $76,000 over the span of the mortgage. Federal profligacy has consequences for a generation of Americans frustrated by the cost of housing.It’s a reminder, too, as these columns have noted, that America’s crisis of debt is intertwined with a crisis of fiat money. Under a gold standard, the discipline required by the convertibility of the dollar put a brake on government borrowing and spending. When the dollar’s last link to gold was cut in 1971, the national debt was some 35 percent of gross domestic product. Today, the debt has soared to 100 percent of the national output, with no sign of relenting.The runup in debt has been facilitated in large degree by the post-Bretton Woods fiat money regime. Its damaging impact can be traced in part in the plummeting value of the dollar. In 1971 the dollar was set in law at a 35th of an ounce of gold. Today, a dollar fetches less than a 4,200th of an ounce of gold. The dollar’s plunge is reflected in today’s fiat-money fueled asset bubble as much as it is the vast rise in public and private indebtedness.Yet in part due to the opacity of monetary policy — and the absence of democratic accountability at the Federal Reserve — consumers often fail to make the connection between the dollar’s collapsing value and the higher prices being charged for everyday goods. In the same vein, Ms. Gimbel reports that the links between high levels of federal debt and today’s higher borrowing costs “are hidden” for American consumers.“There’s no line on your mortgage statement,” per Ms. Gimbel, to explain the “percent of your payment that is due to higher deficit spending.” After all, if borrowers knew that the reckless decisions by lawmakers at Washington were costing them tens of thousands of dollars over the term of their mortgages, it’s hard to imagine they would be particularly pleased. Yet reining in spending, Ms. Gimbel adds, is seen to be “politically unpopular.” That said, there are some politicians who appear willing to speak up about the need at Washington for a restoration of fiscal discipline. One such leader is Governor Ron DeSantis of Florida, a potential GOP presidential contender for 2028. Following the latest elevated report on consumer prices, Mr. DeSantis asserted that the rising federal debt was a factor behind the persistent inflation, and called for lawmakers to rein in their overspending. “When Congress borrows trillions and runs massive deficits, it is still an effective tax increase,” Mr. DeSantis said. “It just comes in the form of higher prices.” That lays down a marker for the GOP as federal debt grows. It’s a reminder, too, of the need for monetary reform. While Mr. Warsh is to be commended for proposing several task forces to improve Fed operations, the dollar’s value was not explicitly cited as a priority, though there was mention of “price stability.”That, in any event, suggests the limits of the central bank’s own remit on this head. The monetary powers of the federal government, after all, are granted to Congress, which bears the responsibility for the dollar’s plunge — and the surge in debt that is fleecing Americans. After all, as Ms. Gimbel puts it: “When we’re talking about the costs of rising national debt, we shouldn’t talk as if they are hypothetical and in the future. They are already here.”

The U.S. National Debt Crisis

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