The National Debt – What Does It Mean? — Faith and Finances Ministry

Patrick Blair

Author: Patrick Blair

I remember the old days when people thought we might someday pay off the U.S. national debt.  Now, no one even entertains that possibility.  As of July 2020, the debt is over $26.5 trillion and rising exponentially.

What Does It Mean?

To most people, the national debt means nothing.  Some are starting to believe the government can accumulate debt forever without consequence.  After all, can’t the government just print the money and pay all the debts back?  While essentially true, doing so would create cataclysmic financial effects.

In reality, the U.S. owes much more than the national debt, because of Social Security, Medicare and pensions.  These unfunded liabilities total over $150 trillion.  The government cannot maintain its current level of spending without causing a currency collapse.

Isn’t This a Temporary COVID-19 Problem?

Unfortunately, no.  As you can see from the chart, the trend has been with us for a long time.  COVID-19 and its effects have only accelerated the problem.  Some have described COVID-19 as the needle that popped the debt bubble.

Can’t We Pay It Back?

If we drastically cut government spending (including Medicare and Social Security benefits) and dramatically raised taxes, it might be theoretically possible.  Sadly, the drop in our standard of living would be socially explosive and politically untenable.  There hasn’t been a serious conversation about paying back the debt, much less balancing the budget, for a very long time.  For all intents and purposes, paying the debt back is impossible.

Can’t We Reset the System?

Nations around the world have similar debts, so why can’t we all just call it even and move forward?  That is a nice idea, but an actual “reset” would be chaotic and not feel fair to most.  Aside from political and social concerns, there are many economic conundrums that prevent easy solutions.  For instance, if we zero out the world’s debt, how will the benefits of pensions, 401ks, IRAs, Social Security, and Medicare be funded?

Rather than tackling difficult problems head on, I believe governments will continue to borrow money with reckless abandon.  It’s much easier for politicians to kick the can down the road rather than make the unpopular decision to cut government spending.  This repeated behavior is what has gotten us to this point.

It is just a matter of time before people lose confidence in the value of the U.S. dollar, along with other currencies.  Because confidence is the only thing that gives currency its value, people will instinctively exchange their dollars for things that they believe have greater value.  This cycle feeds on itself causing currency hyperinflation.

Alternatively, there may come a point where debt overtakes the system and a domino effect of bankruptcy sweeps the world.  Such a deflationary default would have a similarly devastating effect on society as a hyperinflation.  It is possible that politicians and power brokers could somehow come together and gently navigate us to a new system.  In my opinion, that is highly unlikely.

When and How Will This Happen?

No one knows.  Financial bubbles can last a lot longer than anyone might expect.  When the national debt reached 1 trillion in 1982, who could have thought that we would still be operating at 26 trillion+ today?  Our economic system is complex, much like a geologic fault line.  Perhaps “the big one” won’t come in your lifetime.  Or maybe it will come in the next few months.

There’s a lot of speculation as to what straw might break the proverbial camel’s back or how things might unfold once that happens.  Maybe it’s society’s reaction to COVID-19?  Perhaps it starts with bank failures, like in 2008.  In the end, the snowflake that caused the avalanche is irrelevant.

What About Modern Monetary Theory (MMT)?

I want to go on record and say there is no magic money tree out there that can fix all our problems.  Printing money and giving it to everyone does not make us wealthier.  In fact, abusing money printing makes us poorer, because it masks problems and perpetuates inefficiencies, not allowing society to address them.

As many financial commentators have pointed out, there’s nothing modern about MMT.  Also, it’s not a theory.  It’s been tried many times in places such as ancient Rome, Weimar Germany, Zimbabwe, and most recently Venezuela.  The results are always the same: economic calamity.  Unless we gain the wealth of an incredibly productive technology, like cold fusion, we are collectively headed for a reduced standard of living.

How Does This Information Help Me?

Understanding the bigger picture can help you make informed decisions.  Keep in mind that just because something is inevitable, doesn’t mean it is imminent.  It doesn’t mean it will play out with the speed or in the way that you or some expert might imagine it.  But just like engineers who build with earthquakes in mind, we too should be prepared for what we know is inevitable.

I don’t mean to worry any of you, but I believe facing the facts with faith is the best approach.  Abraham did that and God credited him with righteousness.

Against all hope, Abraham in hope believed and so became the father of many nations, just as it had been said to him, “So shall your offspring be.” Without weakening in his faith, he faced the fact that his body was as good as dead—since he was about a hundred years old—and that Sarah’s womb was also dead. Yet he did not waver through unbelief regarding the promise of God, but was strengthened in his faith and gave glory to God, being fully persuaded that God had power to do what he had promised. This is why “it was credited to him as righteousness.” (Romans 4:18-21)

God has promised us eternal life through Jesus and so much more.  He asks that we manage his wealth with effort, wisdom and generosity.  To learn how you can position yourself spiritually and financially to prosper through difficult times, read my book Faith and Finances and take my Building Faith and Finances church course.

Contents of this material have been republished with permission from Faith and Finances Ministry.

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