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Trump ignores mounting debt in US and worldwide

by Quin Hillyer
| December 20, 2019 04:55 PM

As President Trump fiddles, the United States and the world continue to burn holes through all reasonable safeguards against a massive global debt crisis.

As the global news agency AFP put it in a Dec. 19 article, “A wave of debt in emerging and developing nations has grown faster and larger than in any period of the last five decades and could end with another crisis, the World Bank warned Thursday.”

Specifically, “The [International Monetary Fund] reported that total global debt rose to $188 trillion at the end of 2018, equivalent to nearly 230 percent of the world's economy,” especially in developing nations in the “largest, fastest, most broad-based” way in half a century.

The World Bank measures global debt differently from the International Institute of Finance, which reported last month that in the first half of the year, the number had surged to $251 trillion. By either measure, though, the key fact is the degree and rapidity of the surge. The total debt now is three times larger than the global economic output.

More worrisome is that, as bad as debt is in the developing world, debts are also rising in developed nations overall as well — especially in the U.S., whose government has surpassed $23 trillion in total debt and is running annual deficits exceeding $1 trillion. And that was before Congress this week passed yet another horrendously profligateannual appropriations bill with the encouragement again of the Trump administration, which is the least fiscally disciplined presidency in peacetime history.

Worse, this is happening while the top-line economic numbers are as (seemingly) strong as they have ever been. Usually (think back to the 1990s), when the economy is so nominally strong, deficits and debt tend to decrease because economic growth produces more tax revenue while formula-based social spending declines. Indeed, as the Committee for a Responsible Federal Budget describes it, “The deficit has never been this high when the economy was this strong.”

This leaves no fiscal tools available for temporary boosts in federal spending to counteract any new economic slowdown. Worse, because interest rates already are so low, the Federal Reserve won’t easily be able to use traditional monetary stimuli during a slowdown, either.

What all this means is that if the developing world’s debt wave does indeed “crash” anytime soon, the world’s developed nations, especially the U.S., will not be in a position to help stabilize the worldwide economic ship. Worse, the U.S. might not even be able to stay afloat itself, because any ripple effects here could capsize a U.S. economy already revving all its engines but light on ballast.

What this really means is that the Trump administration is producing not the best economy ever but rather the most over-leveraged. Without a major change in course, a day of reckoning, devastating in its effects, surely will come our way.