Counting Down Debt

Let’s get this disclaimer out here now; we do not endorse any political party. We have written this piece as a way of introducing how the frontrunners in this year’s US Presidential race will aim to eradicate the government debt, if elected. We have attempted to be balanced and fair, allowing you to make up your own mind from the facts given. If there is something you feel we’ve omitted or failed to omit, get in touch, we’d love to hear from you.

Now onto the blog….

And how has the US got to this point? Well, ultimately it’s the way that everyone gets into debt… outgoings are more that incomes. But in this instance there is also the joy of compound interest…

You Call That A Debt…

The US currently has $19trillion worth of national debt. Okay, admittedly that figure is a little old, but the 1st February 2016 was when the figure clicked over to the $19trillion mark. Sticklers among you should head to the Debt Clock, where you can see the debt rise in real- time [editor: at the time of writing it was around $19,262,145,950,641].

For the purposed of this article we are going to round that number down to a $19trillion even. But that still means that there is around $58,000 worth of debt for each American citizen (including the kids).

And how has the US got to this point? Well, ultimately it’s the way that everyone gets into debt… outgoings are more that incomes. But in this instance there is also the joy of compound interest…

But, some analysts believe that if nothing is done about it, the national debt will be around $30trillion in a decade. And that’s a best case scenario, based on government spending and policy as it currently stands. Arguably, with a figure like that, Presidential nominees are considering how they’ll have to tackle it if they get into the Oval Office.

Trump’s Targets

Donald Trump, arguably one of America’s best known business men and almost certainly the Republican representative for the Presidency, has been outspoken about the ways in which he would tackle the national debt. Firstly, Trump went on the record to say that, given the right tools, he would be able to eradicate the debt in eight years. Citing his business acumen and his experience, he deemed that it was a reasonable expectation.

In response, there was a furor from the left who said that it wasn’t possible. There was a furor from the right, who agreed (most notable Ted Cruz who claimed Trump’s calculator ‘is missing a few keys’). Eventually the noise was such that Trump had to reconsider his position. He suggested that instead of removing the national debt in a period of eight years, he would in fact be able to pay off a “percentage of it” in ten.

Most recently, however, Trump caused more questioning of his policy towards government debt and rocking the bonds market in the process. Last week Trump initially said, “I would borrow, knowing that if the economy crashed, you could make a deal” to pay bondholders less than full value on the debt owed to them. After the bonds markets went up in arms (and down in price), Trump again clarified his position, and stated that “bonds [are] sacred” and he won’t be using them to move the mountain of government debt.

Berning Money…?

Meanwhile, Bernie Sanders, (who looks like he isn’t going to be the Democratic nominee but certainly isn’t going down without a fight) has a very different approach to the national debt. His proposals are some of the most ambitious and sweeping of all the presidential candidates, but they are also some of the most expensive.

When you crunch the numbers, the senator from Vermont could end up adding $18trillion to the national debt, with a further $3trillion being tacked on as interest costs.

But unlike Trump, Sander’s isn’t backing up. He knows that it is expensive, but still plans to unleash a single-payer health care system, bump up Social Security, and also introduce paid maternity leave in his “revolution”. Sure these things would be beneficial to some sectors of the population, but they are also going to increase national debt significantly which you simply can’t ignore.

Clinton’s Two Cents…

The former Secretary of State, Hillary Clinton, sees a rising debt liability as a national security issue, limiting the capabilities of the US and causing it to appear weak internationally. But, unfortunately, that’s about all she’s said on the subject. The likely Democratic candidate hasn’t offered much in the way of solutions to getting down the debt, in fact she is fairly tight lipped on the matter. However, despite this, analysts have suggested that her policies, if implemented, would add another $1.9trillion to the already escalating national figure.

Although many think her policies are sound, critics have been quick to point out that Clinton’s ideas make her an “old-fashioned tax-and-spend Democrat”, that is to say that most of her proposals are going to be financed by higher taxes, with other policy proposals like enacting immigration reform making up most of the remaining difference.

But Why Are People Even Bothering?

Maybe Trump’s plan to eradicate the $19trillion through renegotiating debt is going to win out; perhaps Sanders will go from being the under-dog to the top-dog, wracking up an additional $21trillion in the process; or maybe President Clinton mark II is going to add a little to the escalating debt as she takes office. Either way, why bother?

The IMF suggested last year that the best course of action for some countries – the US included – is to do nothing about their debt burdens. Not one thing. Nothing. Nada.

Their bottom line: the wisest course for some countries would be to stop distorting economies to deliberately pay down national debt, as this only adds to the burden of the debt, rather than reducing it.

So maybe, whoever wins out, it doesn’t matter what they do with the government debt, just so long as the clock keeps ticking.

Our alerts are used by banks, fund managers and traders all over the world.

Copyright © 2020 fractalerts. All Rights Reserved. fractalerts is a division of fractal, SA