Hey everyone. Today's episode is a little bit different, it's going to be a solo episode with just me and we've got to talk about a major major problem in the US economy, interest
payments on the national debt are exploding higher and I'm going to walk you through why it's happening. What exactly is the problem with that? Where is all that money going? And what we potentially could do to solve the problem for we get in today's episode though here is a word from our sponsors. This episode is brought to you by are done, there are a brand new startup led by a number of Silicon Valley Legends who just raised.
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so the
States government had everyone in a panic. Earlier this year, over the debt limit. Remember when all those headlines were coming out saying that the government was going to default? There was all this talk that if politicians could not, come to an agreement on how they would Finance the government moving forward, then the United States would spiral out of control, the debt would succumb us. Well, now, that the crisis is behind us, we're starting to see the impact of the New Deal. The politicians they worked right up until the 11th hour but they did get that deal done. The problem is that America's debt continues to increase now?
And it's it's just under 33 trillion dollars. Now, when we say 33 trillion dollars, that's almost a video game number. You can't even comprehend it. Well, if you put that into context, the US federal tax revenue is about four point four trillion dollars. That's about 13 thousand three hundred fifty, one dollars in Revenue per Citizen, and then if you look at the income tax revenue, that's about 2.3 trillion dollars and so that is not anywhere near the 33 trillion dollars of the national debt you
As federal spending the official, number six point three trillion and of course that US federal budget deficit is about two trillion dollars. Officially the debt per taxpayer in the United States. You take that 33 trillion dollar number and you divide it by citizen then that's two hundred, fifty four thousand dollars but not every citizen is a taxpayer. So debt per citizen is still right around 100 thousand dollars. The 33 trillion dollars in the United States in the national debt. That's about a hundred thousand dollars per citizen.
In or about two hundred fifty, five thousand dollars per taxpayer, your wild numbers but we should really be focused on a bigger problem in the short term, the interest payments, the government, just hit a scary Milestone. We now spend as much money on the US military as we do on our own debt payments for interest, what am I talking about? All right, so the US interest payments now are hitting all the way up at the same exact amount that the military spending is the first time in
Three decades. It's about just over nine hundred billion dollars closing in on one trillion dollars each. So if we go and we look previously, we found ourselves in this situation once before in the 1990s was the late 1990s. But that was more than 20 years ago. Interest rates have been relatively low compared to historical Norms during that period and military spending had exploded, thanks to the to Forever Wars. So what we saw was military spending was rapidly accelerating and because interest rates were
Relatively low, we were staying with a big big difference between military spending a lot and interest payments relatively low amount. But since the withdrawal in Iraq and Afghanistan, you would think that the military spending would have come down which coupled with high interest rates and last 18 months, would create a scenario where military spending would not be that high, but that's not true. The scary part here is that US military spending since the withdrawal in Iraq and Afghanistan is higher now than it was during the
Uh, to Forever Wars. Think about it this way, the Wars ended, but the spending accelerated. If the United States is not engaged in the wars in Iraq and Afghanistan today. Where's all the spending going? I don't know. But what I do know is we're spending more money today than we were, when we were engaged in those two forever Wars. And so this highlights just how bad we actually have it. Now, if all of a sudden military spending had actually accelerated, and we're spending more now today than we were during the wars. How the heck are
Payment on our national debt equivalent to military spending. Well, according to the Peter G Peterson Foundation, quote in 2022, the federal government spent four hundred seventy six billion dollars on net interest costs on its national debt. So 2022, we spent four hundred seventy six billion dollars that total which had grown by 35% from the three hundred fifty two billion dollars in 2021 was the largest amount ever spent on interest in the budget and it equaled nearly 2% of
of GDP and quote. So as previously believed that our annual interest payments would cross 1 trillion dollars by the end of the 2020s and that would become the highest percentage of GDP in history. It was estimated to go from about two percent in 2020 to to about three point, two percent of GDP by the end of 2029 so that increased from 2% to 3.2 percent, would mean that the debt payments would now end up being the highest percentage of GDP in history. But if we put that in
Text the US government is now spending as much money on national debt interest payments this year in 2023 as they have historically spent on research and development infrastructure and education combined like that is mind-blowing to me that we are spending just as much money on interest payments for the national debt. As we spent on infrastructure, education and research and development. It's a huge problem and puts us in a situation that obviously doesn't suggest that were actually allocating capital.
Well correctly. Now, not only do we have a spending problem. We now also have this interest prepayment problem in the country. The Federal Reserve is gonna have to figure out what to do moving for it. Do they cut interest rates and try to stimulate the economy further? And then they just ignore the fear of a Resurgence and inflation or do they keep interest rates higher than they have, been over the last decade, and let investors and the government feel more pain. I don't know what they're going to do. I don't envy their position at all. It's impossible to tell the future. It's impossible to understand what any one decision.
Around monetary policy or interest rates going to have as an impact on the US economy. But what I do know is that we don't want to live in a world where we're spending more money on interest payments than infrastructure and education. That is a declining country. That is a declining economy. We need to be taking the money that we have as a government. If we're going to spend it and put it into net positive, net creation, things not using it to spend on interest payments on the national debt. Now, spending one trillion dollars on interest payments, seems insane.
Zane, but it looks like that's the path we're headed down. This would be the equivalent of about 50% of our average deficit over the last few years. So if we go back all the way to 2017, the federal deficit was six hundred sixty five billion dollars. Then in 2018, it Rose to 779 billion 2019, it Rose to 984 billion. So when from six hundred sixty five billion in 2017 to a national deficit in 2019 of 984 billion, so it's about a 50 percent growth rate from 2017 to 2019.
But then 2020 habit and in 2020, we had a net deficit of three point. One trillion dollars, three point. One trillion almost three times larger in 2020 than in 2019 and 2019 have been a 50 percent growth over 2017 so that's almost six times as a bigger deficit in 2020 that we had in 2017 then we go to 2021 2.8 trillion dollar deficit so almost the same as 2020 so two years straight we contributed nearly six trillion dollars in deficit,
Then in 2022, it came back down. They should get credit for, bringing it back down, but then, I brought it back down to about a trillion dollars. So, we went back right to 2019 to level of a trillion dollars. It is now estimated in 2023, we're gonna go back to 2 trillion. So, if the 2023 estimate becomes reality and we have a two trillion dollar deficit that means in 2020, there have been three trillion in 2021, it would have been 2.8 trillion in 2022, had been a trillion and then in 2023 have been two trillion dollars, The New Normal is not hundreds of
Billions in the federal deficit, The New Normal, including the last four years is going to end up being a trillion or more in the national deficit. Now, if we go on, we look at that and we see that we have these high interest rates, that means that the interest payments are only going to continue to increase. And so that estimate that we were going to actually have a trillion dollars in interest payments, in a single year by the end of 2029 looks more like that may happen. This year or next year
And so we have a major problem because if you look at the Federal Reserve, the Federal Reserve is not talking about emergency rate, cuts and bringing interest rates back down to two percent or lower. They're still talking about potentially even raising interest rates or keeping them where they are now. And so, we now have a u.s. government that is spending more money on interest payments. Then they're spending on infrastructure and education. But remember not only is that an eye-popping stat. They also now the interest payment is equivalent to our military spending in.
Military spending is at an all-time high. So, the US government is spending as much money to service their own debt, then they are to defend our country. This is a big problem and it's one that we have to solve in order to solve it. There is going to have to be a couple of different things that they do first. We have to get interest rates down, forget interest rates down, that will alleviate some of the pressure. The second, it would be very helpful if we could run a balanced budget, maybe one where there's even a surplus. So we could actually start to
Reverse. The problem of the national debt that is very unlikely. Both sides of the aisle, always talk about balanced budgets. None of them ever do it. But the third thing and one part that a lot of people don't really pay attention to is if we can continue to generate GDP growth and that GDP growth leads to more tax revenue that tax revenue then on a percentage basis being diverted into things like interest payments would be a lower percent and therefore we would have
Extra money to be able to spend on other things, like infrastructure, research and development education, military Etc. And so, in a weird way, what we really should be doing is cutting we should be cutting interest rates. We should be cutting down on the contribution to the federal deficit every single year it's cetera. But we have a third option which is we could try to outgrow the problem. Now we will never actually outgrow it. We will not be able to generate enough GDP growth. To generate enough tax revenue to actually eat into this problem in any sort of material way over the
long term. But what we can do is we can start with 2024, we can actually solve the problem in 2024, how do we get into a situation where we have a surplus budget, where we are spending Less in terms of these interest payments? And we have extra money. It's a lower percent of the actual federal budget that is being spent on interest payments and that frees up cash for everything else. Now I'm not holding my breath, I don't think there's anyone who's a politician who's actually committed to doing this. It would be highly unpopular.
Earlier because it would require Cuts, we would have to do things that would be unpopular with citizens or with their colleagues in the senate or in Congress. But if we really do want to solve this problem, that's what we got to do. Because it is absurd to think that we spend as much money paying interest on our national debt than we do on the military and we spend more on interest payments than we do on education and on infrastructure. We live in a country where American infrastructure is crumbling, we have to improve it. We have to re sure.
We have to kick-start American manufacturing. We have to rebuild roads, Bridges trains, Etc. But we can't do it. If a big portion, big meaning, a trillion dollars, a year. From our federal budget is being diverted to pay interest on the national debt. So that's the problem. It's how big the problem is and that's how I think that we can solve it. The odds that I would place on this actually being solved less than 5%, that's sad to say it's depressing. It's
Reading. But that's just where we find ourselves. It is very unlikely that anyone is going to solve this problem because no one is incentivized to solve the problem. And so Warren Buffett had this great thing, I'm going to paraphrase. He basically said, if you want to balance the budget, what you should do is you should simply say that any politician who is not able during their term to balance. The budget can't get reelected. That's it. They'll all bounce a bunch of tomorrow. If you say you can't get reelected unless you solve this problem, they will
all solve the problem. So it's not a. Can they solve it? It is simply a, will they know that regardless of whether they solve the problem or not, people are still going to vote for them. And if people are going to still vote for you, it's kind of like if you're at work and you don't do your job, you're still gonna get paid eventually. You stop doing your job? There's no accountability. And that's a huge problem. That's why we find ourselves with one two or three trillion dollar annual federal deficits and that's why we find ourselves. Now, in a position where we are, likely going to be paying a trillion dollars a year in interest.
It's on that national debt. I hope you enjoy some of these shorter solo episodes, let me know. Either send me an email. Tweet at me, find out my smoke signal. Do whatever you want to do. Figure out a way to contact me. Let me know if you like these or not. I hope you guys learned something today. Make sure that you're subscribed to the podcast. On Apple Spotify, go to YouTube. Make sure you subscribe there as well. And I will talk to you guys during the next episode.
