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The US national debt is so high that it has exceeded 100% of GDP. We’re talking over $35 trillion. Nice little chunk of change there. So, what led us to this point and how do we move forward?
There are several things that have helped the US rack up that debt: Baby Boomers retiring and collecting from the system instead of paying into it, spending on wars, and recent administrations carrying larger and larger budgets…just to mention a few.
While the US debt is concerning, a healthy dose of perspective might help back you off that ledge. Europe is facing a severe demographic problem. China’s debt stems largely from corporations and is still massive. Japan has a debt-to-GDP ratio of a few hundred times GDP, and they’re doing…all right.
So yeah, the US has a problem, but we’re not quite in crisis mode. Give it about 30 years before you really start to worry (heck, maybe someone will even come along and fix the problem before we get there). In the meantime, the US could see massive capital flight from the collapse of other countries, and that would buy us some more time to figure out our issues.
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Hey, everyone. Peter Zeihan here. Coming to you from the top of the Turner Cascade in southern Yosemite. That’s the rider range behind me. That’s where I’m going for the next three days. Today we’re taking an entry from the Ask Peter forum, which is also actually one that’s on my “things I do or don’t worry about” list. And that’s the national debt.
The United States now has a national debt in excess of 100% of GDP. It’s ballooned in recent years. And the question is, isn’t this going to be a problem soon? Problem? Yes. Soon? No. So let’s deal with the problem side first, ’cause that’s more obvious. The Baby Boomers, over the last 40 years, have voted themselves more and more social benefits, have expanded things like Medicaid, Social Security, and such, and then raided the funds that were built to fund them to the point that they’re all going to go bankrupt in the next decade or two.
In addition, we had George W. Bush with the War on Terror and the 9/11 attacks that ran some of the largest budget deficits we’ve seen in modern history, followed by Barack Obama, who doubled it in a time of peace, followed by Donald Trump, who doubled again in a time of peace. And now Joe Biden, who was a senior in August… Now, I think he’s going to top Trump’s record this month. Anyway, so, yes, the budget has gotten out of control. And since Donald Trump purged the fiscal conservatives from the Republican Party, there’s no longer a voice in Congress that seems to have any interest in fiduciary responsibility. So we’re seeing the budget getting higher and higher and higher.
And now that the Baby Boomers are majority retired, most of them have gone from being taxpayers to tax takers. And it’s only going to increase in the years and decades to come. Even worse, the new generation coming in—Generation Z—is the smallest generation we’ve ever had. So we’re going to be looking at a constrained ability of the government to raise money through taxes for at least the next 50 years.
But, you have to keep this in perspective. The Europeans are in a much worse situation. Demographically, their equivalent of Gen Z is the same as our equivalent of Gen X, and then their millennials are even fewer, and their Zs are even less. So they’re going through where we will be in 30 or 40 years right now.
And a lot of these countries are already spending as much as three times on pensions as we are. Second, look at the Chinese. Technically, their debt isn’t national, it’s corporate. But you’re talking mostly state-owned companies here, so it’s more or less the same thing. And since 2008, they have exploded their debt up to 300% of GDP.
It would be like if we had done COVID emergency spending every year for 15 years.
But then there’s Japan. Japan crashed and had their demographic adjustment back in the 1990s. They haven’t run a budget surplus since. They haven’t had much economic growth since. Much like the Europeans, they’ve aged out.
They have been running deficits of the scale that we had during COVID since the 1990s, which means that they now, if you include pension arrears (which I think you should), have a debt-to-GDP ratio of about 500%, and they’re still there. Now, the point of this is not that we don’t have a problem. Of course, we have a problem.
Of course, it’s going to adjust. Of course, we’re going to pay for it, and it’s going to hurt. But you’ve got to keep it in perspective. The United States is the largest economy in the world. We are the safe haven for currency. There is no even theoretical competition for that anymore, now that the Eurozone is basically facing obsolescence for demographic reasons.
So yes, if all we do is keep going on the path we’re on, we have another 30 years before we reach a Japan-style situation. And Japan’s still there now. So is this a problem? Yes. Can it manifest in ways that we know? Yeah. Is it going to manifest in ways we don’t know? Oh yeah. But not today, and not next year, and probably not next decade either.
Oh, one more thing. Oh, and this is the Turner headwall. This is the head of the Mercer Glacier back in the day. So Half Dome, El Capitan, this is where it all started. This is Turner Lake. Anyway, one more thing. A lot can happen in 30 years. In fact, in those 30 years, we’re almost certainly going to see the collapse of the Chinese system and the end of the Eurozone—systems that are far more indebted than the United States.
And as we have seen with every country that has had a debt crisis in the last 70 years, when the money moves because it doesn’t want to be there anymore, it almost always comes to the United States. So we are looking at absolutely mythic levels of capital flight.
As these systems break down, which is only going to buy the United States some more time. All right, I’m done for real. Bye.
