The Burden of Debt Has Stabilized in The Past Few Years

The Hill reported on November 1 “US debt surpasses $23 trillion for first time”. The media creates “fake news” when it periodically reports that the dollar value of the federal deficit and federal debt in the USA are growing, and leaves it at that. The “economic burden” of the deficit and the debt are what’s important. These are not measured in absolute dollars but by the growth in the debt and the deficit in dollars relative to the growth of the GDP.

The deficit to GDP ratio since the start of 2017 has been between 3.4% and 4%. The highest deficit to GDP levels in modern history occurred during and after WW II, 26.9% in 1943, 21.2% in 1944 and 20% in1945. No financial crisis or economic calamity emerged as a result. The current deficit to GDP levels are well below the WW II levels.

The debt to GDP ratio during WWII grew to 70% by 1943 from 50% in 1944. It mushroomed to 91% in 1944, 114% in 1945 and 119% in 1946.

The debt to GDP ratio was 104% at the end of the Obama administration in 2016. It rose steadily from 68% in 2008 during all but one year during Obama’s two terms. During the first two years of the Trump administration it was 103% and 105%, and is forecast to be 106% for the next two fiscal years. These are not material changes in the recent burden of the debt such as happened during and immediately following WW II, and as happened to a lesser degree during the eight Obama years. Yet political opportunists and finance moralists are forever predicting that a crisis is just around the corner with a $22.776 trillion debt as of 9/30/2019, the end of the 2019 fiscal year. From a longer run perspective, however, 68% in 2000 to 106% in 2019/2020, it could be argued the debt to GDP level is approaching WWII levels.