Over the weekend, I was reading a newsletter from Bonner Private Research, and it sent me down a rabbit hole reading about government spending over the past 15 years and, in particular, the massive increase in spending brought on by the Covid pandemic. Given the gravity of the situation, I want to share what I’ve found. Just understand that this is not a problem of a single political party – both parties are guilty of building the national debt to unsustainable levels. Both parties have special interest groups and their lobbyists that provide campaign donations in exchange for support of their spending priorities. We are just examining the results in this post.
America is facing a debt crisis of unprecedented proportions. Over the past 15 years, our national debt has ballooned to mind-boggling levels, fueled by increased spending across various categories and exacerbated by the COVID-19 pandemic.
In 2023 alone, total federal spending reached a staggering $6.5 trillion, while tax revenues came in at $4.9 trillion. That’s a deficit of $1.6 trillion – or about 33% of total spending. To put that in perspective, in 2008, the deficit was “only” $400 billion, or 14% of total spending. The table below shows you the growth over the past 15 years.
| Year | Total Spending (in trillions) | % Change | Total Revenue (in trillions) | % Change | Deficit (in trillions) |
| 2008 | $2.90 | – | $2.50 | – | $0.40 |
| 2012 | $3.50 | 21% | $2.40 | -4% | $1.10 |
| 2016 | $3.90 | 11% | $3.30 | 38% | $0.60 |
| 2020 | $6.60 | 69% | $3.40 | 3% | $3.20 |
| 2023 | $6.50 | -2% | $4.90 | 44% | $1.60 |
The pandemic was a major driver of this spending increase. In 2020, the federal government spent over $2.2 trillion on various relief programs, including $800 billion on stimulus checks, $500 billion on the Paycheck Protection Program (PPP) for small businesses, and over $400 billion on expanded unemployment benefits.
But even as the pandemic recedes, spending levels remain elevated in all of the major categories.
| Category | 2008 (in billions) | 2020 (in billions) | % Change (2008-2020) | 2023 (in billions) | % Change (2020-2023) | % Change (2008-2023) |
| Social Security | $578 | $916 | 58% | $715 | -22% | 24% |
| Medicare/Medicaid | $239 | $1,200 | 402% | $449 | -63% | 88% |
| Defense | $222 | $714 | 222% | $433 | -39% | 95% |
| Income Security | $123 | $537 | 337% | $382 | -29% | 211% |
| Transportation & Infrastructure | $42 | $232 | 452% | $182 | -22% | 333% |
| Education | $70 | $204 | 191% | $169 | -17% | 141% |
| Veterans Benefits & Services | $41 | $105 | 156% | $142 | 35% | 247% |
| Net Interest on National Debt | $91 | $387 | 325% | $429 | 11% | 373% |
The “other” spending category, which includes many of these relief programs, has dropped from its 2020 peak of $2.2 trillion but is still a whopping $1.2 trillion in 2023 – a 505% increase from 2019 levels of $198 billion.
| Category | 2019 (in billions) | 2020 (in billions) | % Change (2019-2020) | 2023 (in billions) | % Change (2020-2023) | % Change (2019-2023) |
| Income Security | $301 | $537 | 78% | $382 | -29% | 27% |
| Healthcare | $1,200 | $1,400 | 17% | $1,400 | 0% | 17% |
| Education | $149 | $204 | 37% | $169 | -17% | 13% |
| Other Spending | $198 | $2,200 | 1011% | $1,200 | -45% | 505% |
| – Stimulus Checks | – | $800 | – | – | – | – |
| – PPP Loans | – | $500 | – | – | – | – |
| – Unemployment Benefits | – | $400 | – | – | – | – |
This rampant spending greater than revenues received has caused the national debt to skyrocket. As of 2023, America’s debt-to-GDP ratio (the total debt as a percentage of our annual economic output) stands at around 120%. That’s dangerously close to the 130% threshold that economists Carmen Reinhart and Kenneth Rogoff have identified as the “danger zone” where economic growth grinds to a halt, and the risk of default skyrockets. How close? An AI was given research from the International Monetary Fund on US debt accumulation and deficit spending from 2001 to 2024, and the AI concluded that the US Debt will reach 130% of GDP by end of 2025.
Why is 130% the magic number? Well, it has to do with something called the “debt overhang effect.” When a country’s debt gets too high, economic growth starts to drag. This happens for a few reasons:
1. High debt levels lead to higher interest rates, which makes borrowing more expensive for businesses and consumers. This can slow down investment and spending, which in turn slows down economic growth.
2. High debt levels also mean that a more significant portion of the government’s budget has to go toward paying off interest on the debt rather than being invested in things like infrastructure, education, and healthcare that can boost long-term economic growth.
3. When debt levels get really high, there’s a risk that investors will start to lose confidence in the government’s ability to pay back its debts. This can lead to a debt crisis, where the government has trouble borrowing money and may even default on its obligations.
In a release yesterday, Bonner Private Research states:
“The Treasury Department says the US Government ran a $1 trillion deficit in the first half of the fiscal year. According to the figure from the Monthly Statement of the Treasury, total Defense spending for the first half of the year was $433 billion. Net interest expense was the fourth largest expense at $429 billion (Social Security was first at $715 billion and Medicare/Medicaid second at $449 billion). “
Bonner continues:
“The Fed is caught between a rock and a hard place,” says Stephanie Pomboy of MacroMavens. If the feds borrow the money, they need to pay interest. The more they borrow, the more interest they pay. Unless they stop spending, they need to borrow more and more. Sooner or later, the feds will owe so much interest that they won’t be able to pay it. Investors see a reckoning coming; they demand higher interest rates to cover the risk, raising the feds’ interest expense even further.
Martin Wolf, writing in the Financial Times states:
All this threatens to create a vicious circle in which high perceptions of risk raise interest rates above likely growth rates, thereby making fiscal positions less sustainable and keeping risk premiums high. At some point, surely, Stein’s law would bite: investor resistance to further rises in debt would jump and then monetisation, inflation, financial repression and a global monetary mess would ensue. The IMF blog argues that, “first and foremost, countries should start to gradually and credibly rebuild fiscal buffers and ensure the long-term sustainability of their sovereign debt”.
To illustrate the magnitude of the problem, let’s look at some projections. If current economic trends continue, by 2030:
– Total national debt: $48 trillion (up from $31 trillion in 2023)
– GDP: $32 trillion (assuming a modest 2% annual growth rate which we have roughly averaged over the past several years)
– RESULT – Debt-to-GDP ratio: 150%
– Interest on the national debt: $2.4 trillion (assuming an interest rate of 5%)
– Tax revenue: $7.3 trillion (assuming Revenue grows at the current rate of GDP, and no tax increase)
– Total government spending: $11.2 trillion (assuming spending grows at the current rate of around 6% per year)
– RESULT – Budget deficit: $3.9 trillion (2.5X 2023’s deficit)
These numbers are terrifying, and they underscore the urgent need for action. We cannot continue down this path of spending more than tax revenues collected and accumulating debt that we may never be able to pay back. The longer we wait, the more painful the reckoning will be.
This is the first post in a four-part series. In the next three, we will look at the potential for spending cuts that could bring spending in line with revenues, Modern Monetary Theory, and balancing fiscal responsibility with economic growth.
