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US federal debt has ran on the fast track since 2009, overtook GDP in 2012, and keeps faring ahead of GDP since 2017. Presidents G.W. Bush and Obama's huge budget deficits have compounded the problem, adding to the burden. Yet, at about 106% of GDP, the US federal debt is at a level that many other countries, including Portugal, might feel comfortable with. To further enrage other lesser players, the U.S. may resort to the handy expedient of paying debt by throwing freshly-printed stacks of greenbacks at the rest of the world, often avid, sometimes resigned to collect dollar bills. The print shop sleight of hand can hardly be seen as a sensible solution to the debt issue: it comes heavy on the taxpayer, and it is a hindrance to sound, future-building investment. However, short of being an ever-lasting solution, it is likely to still enjoy plenty of easy-going days.
Total outstanding debt breaks down into debt held by the public, currently representing 73% of the total, and intra-governmental holdings making the 27% balance. The latter comprises mainly obligations to social security beneficiaries, retired military and other federal employees. The former, debt held by the public, is all the debt held by any entities, private or public, outside the U.S. Government, under the form of Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds, and State and Local Government Series securities. It requires management care, because, as Jerome Powell, the current Chairman of the Federal Reserve, said during his Congress hearing on February 27 2018, "there could come a time when the public, the global debt-buying public, would come to the view that we either weren't prepared to honor our debts or that we couldn't service them". This would entail dire consequences even for an economy as strong as the U.S.
Currently, the debt held by the public ascends to 77.5% of the economy. The Congressional Budget Office (CBO) projects it will rise to 91% by 2027. Although nobody can reasonably tell what the right level of debt should be, CBO believes that the current growth rate of debt is unsustainable. Instead of letting it grow, it should be brought down to 70% in that period, and over the longer term, closer toward the historical level of around 40% of GDP, in order to provide enough slack to deal with unforeseen developments and crises.
Working towards such goals would require major budget savings such as:
President Trump's administration and the Republican-controlled congress have taken quite the opposite legislative path. The scenario is one of massive tax-cuts, huge spending increases in the military, gigantic allocations for new weapon systems. Only the converts can believe that the dubious trickle-down economic effect of tax-cutting or the trade-balance benefits expected from the tariff wars engaged by the administration against the U.S. trade partners will ever produce tax revenues strong enough to start filling the debt gap. Powell's warning that the global debt-buying public might suspect that the U.S. could not and would not honor their debts looks increasingly like a somber prognosis.