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On Feb. 1, the U.S. Treasury Department reported that the U.S. gross national debt surpassed $30 trillion for the first time, a figure that’s incomprehensible at the best of times, let alone when many Americans are still dealing with the economic impact of the coronavirus pandemic.

But as unfathomable as this number is, the national debt can impact ordinary
Americans’ lives.

Daniel Rodriguez, COO at Hill Wealth Strategies, says that if the government wants to maintain the same level of benefits and services to Americans and its international allies without running up both the deficit and the national debt, more revenue will be required.

“The only way to get more revenue is to increase taxes on the American people or reduce spending,” he says. “The government may choose to reduce spending on things like infrastructure, social safety nets, first responders, and education. Those programs have direct impacts on Americans’ day-to-day lives.”

Here’s what the national debt is, the factors responsible for making it rise and fall and how it can impact your life.

What Is the National Debt?

Just like the debt you have is a figure that represents how much you owe your creditors, the national debt represents how much the United States government owes its creditors.

When the U.S. government spends more money than the revenues it brings in each year, it creates an imbalance called a budget deficit. The government must then borrow money to cover its expenses.

It’s more common than not for the government to run a deficit, regardless of which party is in charge. In fact, the government has run a deficit for 77 of the past 90 years and first carried debt after the Revolutionary War in 1790.

How Could the National Debt Impact Consumers?

Congress is responsible for ensuring the government stays funded, but you might still be curious about the national debt and how it relates to the federal deficit.

Here are six ways the rising national debt could potentially impact Americans.

1. Higher Interest Rates
   When the government needs to borrow more, they’ll need to increase yields on Treasury bills, I Bonds and other fixed-income instruments to make those investments attractive to investors. And while this can translate into higher yields on savings accounts, it also means higher mortgage rates, making the housing market unaffordable to some Americans. Consumers will likely pay more in interest on their credit cards and other loans as well, since those interest rates rise when the Fed raises interest rates, too.
2. Higher Product Prices
   While America’s grappling with paying more at the grocery store, the national debt at current levels could cause inflationary trends to continue. Increased Treasury yields could make American businesses appear to be riskier investments abroad, which could force companies to raise yields on new bonds to make them attractive investments. The more companies have to pay to keep their debts in good standing, the more pressure to increase product prices. Higher product prices mean higher revenues, which is how companies can pay their debt obligations.
3. Lower Home Prices
   As interest rates go up, Americans will likely qualify to borrow less since more of their payment each month goes to interest and less toward principal. Thus, buyers won’t be able to afford as many homes as they would when interest rates are lower. This will place downward pressure on home prices, which can impact the equity of all homeowners.
4. Less to Spend on Other Government Initiatives
   The more money the U.S. has to spend on meeting its debt obligations as interest rates increase, the less financial capacity it could have to fund programs focused on education, veterans benefits and transportation.
   This breakdown of the 2019 Federal Budget from the Council on Foreign Relations shows how the budget pie is only so big, so when one area increases (like interest payments), another must decrease.
   

   Source: Congressional Budget Office

5.  National Security Issues
   The higher the national debt becomes, the more the U.S. is seen as a global credit risk. This could impact the U.S.’s ability to borrow money in times of increased global pressure and put us at risk for not being able to meet our obligations to our allies—especially in wartime. This could negatively impact the U.S.’s position as a global political, economic and social power.
6. Lower Returns on your Investments
   Bonds issued by the Treasury are typically seen as low-risk investments. When interest rates rise, the yield on these low-risk investments also rises, making them more attractive investments for income-minded investors over other riskier income-generating investments like corporate bonds.
   This could leave companies that typically rely on bonds short on the loans they need to finance expansions and operations and translate into lower returns for equity investors when companies fail to meet revenue targets.

What Causes the National Debt to Increase?

Sometimes the government needs to increase spending to stabilize the economy, and protect Americans and businesses from unexpected economic conditions.

During The Great Recession (Dec. 2007 to Jun. 2009), for example, Congress passed legislation injecting $1.8 trillion into the economy. But that pales in comparison to the $4.5 trillion the Trump and Biden administrations have pumped into the economy since the Covid pandemic began in March 2020. However, there are other reasons the national debt increases, even during years where spending is moderate and the economy is in good shape

Tax Cuts

On one hand, tax cuts can stimulate the economy and put more money in Americans’ bank accounts every payday. But those same tax cuts mean the federal government brings in less revenue across the board.

For example, the Tax Cuts and Jobs Act of 2017 slashed taxes for individual and corporate payers, but created a $275 billion shortfall in revenue even though the economy grew. The Act caused revenue from corporate taxes to decrease by $135 billion, a 40% reduction from projected revenue.

Rising Healthcare Costs

According to data from the nonpartisan Peter G. Peterson Foundation, per capita healthcare spending in the U.S. is three times higher than in comparable developed nations like the United Kingdom and France. As America’s population ages, more people enroll in Medicare—and older Americans typically require more care. This translates to the federal budget bearing the burden for rising healthcare costs.

Interest Costs

If you’ve ever had a car loan or mortgage, you’re familiar with how much of your payment each month goes toward interest. The same is true of the federal government’s debts. As the national debt rises, the government will pay more interest to keep those debts in good standing.

Using data from the Congressional Budget Office and the Office of Management and Budget, the Peter G. Peterson Foundation estimates that the government will pay a staggering $5.4 trillion in interest over the next 10 years.

Who’s Responsible for the Current National Debt?

In short? Pretty much every administration.

“Regardless of political affiliation, parties in power have run up the deficit through higher spending and lower revenue collection,” says Brian Rehling, head of Global Fixed Income Strategy at Wells Fargo Investment Institute.

While it’s easy to say a particular president or president’s administration caused the federal deficit and national debt to move a certain direction, it’s important to note that only Congress can authorize the type of legislation with the most impact on both figures.

Here’s a look at how Congress acted during four notable presidential administrations and how their actions impacted both the deficit and national debt.

Franklin D. Roosevelt

As the nation’s last four-term president, FDR helped Americans weather an abundance of economic crises. His presidency spanned The Great Depression and his signature New Deal economic recovery package helped lift America out of financial rock bottom. But the most significant increase to the national debt was the cost of World War II, which added roughly $186 billion to the national debt between 1942 and 1945. Congress added $236 billion to the national debt during FDR’s terms, representing an increase of 1,048%.

Ronald Reagan

During Reagan’s two terms, Congress enacted two historic tax cuts that decreased government revenue: the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986. These Acts passed by Congress decreased revenue as a percent of the GDP by 1.7% between 1982 and 1990, creating a revenue shortfall that contributed to the national debt increasing 261% ($1.26 trillion) during his administration, from $924.6 billion to $2.19 trillion.

Barack Obama

Over two terms, the Obama administration oversaw both The Great Recession due to the collapse of the mortgage market and the ensuing recovery. In 2009, Congress passed the Economic Stimulus Act, which helped countless Americans save their homes from foreclosure, pumping $831 billion into the economy. Congressional tax cuts accounted for another $858 billion added to the national debt when passed by a strong bipartisan showing. All in all, Congressional action increased the national deficit by 74 percent and added $8.6 trillion to the national debt during Obama’s two terms.

Donald Trump

During his single term, Congress passed the Tax Cuts and Jobs Act in 2017, which slashed corporate and personal income tax rates. Considered by many a boon for the wealthiest Americans and corporations, at the time of its passage, the Congressional Budget Office estimated the cuts would increase the federal deficit by $1.9 trillion.

While the Treasury Secretary estimated that the tax cuts would decrease the federal deficit, the deficit increased from $665 billion in 2017 to $3.13 trillion in 2020. The tax cuts drove some of this increase but multiple Covid relief packages were responsible for the majority of the increase.

The federal debt held by the public increased from $14.6 trillion in 2017 to over $21 trillion in 2020. Public debt and intragovernmental debt (the amount owed to federal retirement trust funds like the Social Security Trust Fund) make up the national debt. It’s the amount of money the U.S. owes to outside debtors such as U.S. banks and investors, businesses, individuals, state and local governments, Federal Reserve and foreign governments and international investors like Japan and China. The money is borrowed to raise the cash needed to keep the U.S. operating. It includes Treasury bills, notes, and bonds. Other holders of public debt include Treasury Inflation-Protected Securities (TIPS), U.S. savings bonds and state and local government series securities.

“The national debt continues to grow as it has not for decades,” says James Cassel, chairman and co-founder of investment bank Cassel Salpeter. “This is the result of this simple concept of spending more money than you have in revenue.” Cassel also mentions that both major political parties have, at times, spoken seriously about a commitment to reduce the national debt yet conversations and strategy remain stalled.

However, the national debt is more commonly used as a bargaining chip when both parties posture about raising the debt ceiling each year. Without raising the debt ceiling, the U.S. would default on its debt obligations. Thus, Congress always votes to raise the debt ceiling (how much money the U.S. government can borrow), but not before parties negotiate on other legislation.

Are We Helpless When It Comes to the National Debt?

In some ways, yes. But there are actions you can take to mitigate the effect of the national debt on your life.

• Pay your taxes: According to the IRS, the federal government loses $1 trillion each year due to unpaid taxes.
• Put pressure on your Congressional reps: Call or write to your Representatives and Senators in support of tax code reform, increased funding for the IRS to track down tax cheats and closing loopholes that give the country’s most profitable companies tax bills that are lower than most Americans.
• Follow your reps’ voting history: If you’re curious how your Representatives and Senators have voted on fiscal policy issues, that’s easy to check. You can use voting history to back up your concerns when writing or calling your reps.
• Learn about healthcare reform: While national healthcare remains a contentious topic, it could pay to learn how other countries control healthcare costs and how those policies could benefit you, your neighbors and the impact rising healthcare costs has on the national debt.

Rehling from Wells Fargo Investment Institute says that while the national debt has increased substantially over the past decade, the U.S. isn’t unique in this regard. The rest of the developed world has seen similar trends. “While these budget trends are unsustainable over the long run, there is no indication that current debt levels are overly worrisome,” he says.

Ed. note: This article has been corrected to more accurately reflect the U.S. national debt increased numbers.

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The White House’s new supply chain dashboard is a twice monthly collection of metrics that tracks the progress of delayed imported goods at the ports of Los Angeles and Long Beach and in the economy at large. The true value of the dashboard remains to be seen, however, with the prospect that the measuring tool could have unintended consequences.

Thomas Goldsby is the Haslam Chair of Logistics at the University of Tennessee’s Master’s of Science in Supply Chain Management. He thought the new high-level metrics, “…are helpful first steps but they don’t do anything to save Santa in 2021. They will be helpful in 2024 and beyond but the actions needed now [to address the supply chain crisis] should’ve been taken years ago.”

Today at the Port of Baltimore, the White House said President Joe Biden will detail what his administration has already done to get supply chains moving to help lower prices, speed up deliveries and address shortages.

Improved Communication

Daniel Dreyfus is the global customs leader and executive director of consulting at Ernst & Young. He observed that, “The supply chain dashboard is a step in the right direction to improve communication between the public and private sector so they can work together more effectively to navigate ongoing supply chain challenges.

“Every supply chain is different, if not unique, and each movement is different for reasons that include the impacts of elements beyond anyone’s control, such as issues related to Covid-19 most recently, or something perennial like extreme weather,” he said.

“Having more transparency into the current state of broader supply chain issues may help global supply chain operators and logisticians plan for contingencies more effectively,” Dreyfus concluded.

Too Long Of A Lag Time

Ali Hasan Raza is the co-founder and CEO of ThroughPut Inc., an artificial intelligence supply chain platform. He noted that, “While having visibility from end-to-end may help identify problems, updating the dashboard every two weeks is too much of a lag to actually act on operations. In short, you won’t be able to manage any better, but at least you will be able to see what’s happening.

A Database For Consumers And Distributors

Carla Saunders, operations manager of Consumer’s Health Report, said the dashboard, “will ultimately serve as a database for the consumer and distributors so they can move accordingly and receive updates on major imports such as automobiles, electronics, and other supplies.

She speculated that other “platforms down the road could potentially provide the country with additional accurate data to avoid a country-wide financial crisis, considering that AI has shown promising results in analyzing, determining and preventing financial disasters- the same formula can be applied to other problems within the country.”

Not Much Useful Information

James Cassel, cofounder and chairman of Miami-based investment bank Cassel Salpeter & Co. He said the new White House supply chain dashboard “doesn’t yet provide much useful information to help address [the country’s] logistics bottleneck.

“The dashboard provides information about the problem, but it’s not information that can really help solve the problem. What needs to be provided is a way of addressing whether or not incoming shipments can be diverted to other ports, whether they have available capacity, and whether or not trucks can be diverted to more expeditiously bring in products and get them to their final destinations.”

Taking A Process View

Ravin Jesuthasan, global transformation leader at Mercer, noted that, “The dashboard is made up of three metrics that track the movement of product from when they get here, when they are unloaded and when they hit the stores. The dashboard is a great example of taking a process view of a problem and identifying indicators at the most critical pain points in the process.

“It would be too easy to focus on one metric (e.g., no. of ships at anchor) but that only tells you one part of the story. Organizations experiencing the pains of the widespread labor shortages would be advised to approach the problem with a similar set of process metrics so they can diagnose the key drivers of their specific workforce challenges.”

Will Not Solve Many Pressing Issues

Oren Zaslansky, CEO of Flock Freight, observed that, “While a dashboard will certainly shed some light on the ongoing supply chain challenges, it will not solve many of the more pressing issues that need to be addressed.

For example, trucks that are not utilizing all available space to move freight, thus increasing the need for additional trucks and drivers. If the government was more focused on filling trucks, without impacting dwell times and transit speed, there would be a more significant impact to supply chain management.”

Useful For Forecasting And Planning

Dwight Morgan is executive vice president of business development at M. Holland Company, an international thermoplastic resin distributor. He counseled that, “A central repository for supply chain statistical trends will be useful to help companies forecast and plan. However, it will be important that it not be a political exercise. It might be better for it to be sponsored by a nonpartisan entity rather than the White House.

“Given the dynamics of supply chain challenges and the likely duration, greater frequency [than every two weeks] for a longer period would be in order. In reality, there’s probably little the government can do to quickly alleviate many supply chain pressures, since they are driven by the pandemic and its asymmetrical impacts on the global economy.“

Provides Data That Companies Already Know

Abe Eshkenazi is the CEO at the Association for Supply Chain Management. He noted that, “While the new White House dashboard may provide good information, it’s likely data that companies already know.

“The necessary changes are at every step of the supply chain, data is just one critical aspect. There are simply not enough workers to manage the supply chain crisis, and until more people are hired and trained in supply chain roles, we cannot expect to see drastic improvements.”

A Weapon In Future Trade War Against China?

Michael Gravier is an expert in global supply chain management and a professor of marketing at Bryant University. He said, “the massive scale of evolution in our society and economy demand that we take action, or at least we study what’s happening.

“One fear is that the dashboard will also be used as a weapon in the cold war arsenal for a trade war against China. China will no doubt respond soon with a similar tool. Nobody has forgotten the importance of economics to the fall of the Soviet Union, and the bringing of China into the world trade order was a critical move in that long strategy,” he said.

“In the long run, the dashboard is a brilliant move. We are just at the beginning of understanding global supply chains and how they influence trade…this understanding will inform legislators and policy makers and guide the executive branch in its enforcement and oversight,” Gravier predicted.

What’s Needed Next

Supply chain engineer Barry Bradley noted that the White House dashboard shows the what—one source of truth for the scale of the problems in the U.S. supply chain. What’s needed now to fix the problems is a dashboard for the why—root causes of supply chain bottlenecks stopping goods from reaching their destinations. “With visibility into the why the action need is more clear and bottlenecks are more quickly removed, resulting in a safer, cheaper and more resilient supply chain,” he said.

 

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