Economy

As the national debt crossed the $36 trillion line this week the news once again focused on the idea of how much longer can this keep going. The national debt in 1996 was $5 trillion. Each year as the country spends more than it takes in it borrows to cover the difference. Since everyone knows that you cannot just print all the money needed to satisfy every want, then what factors decide the limit. Probably the most important is interest on the borrowed money. Interest cost $468 billion in 1996 and $890 billion in 2024 but the GDP in 1996 was $8 trillion and in 2024 it was $29 trillion. To get an apples to apples comparison the percent of interest on the total debt was 5.8% in 1996 and 3% in 2024. Most economist say that as long as the interest rate owed on the debt is less than the growth rate of the economy the debt will not be a problem. While this looks promising consider that interest rates have been very low during this time period. This is why Modern Monetary Theorist say that you can print all the money you need as long as you keep inflation under control. This will pose a problem in the coming years as reshoring leads to a doubling of the industrial base which in turn leads to higher wages which in turn leads to wage/price inflation. As the economy heats up the Fed will raise interest rates which will also add inflationary pressure. The goal will be to keep wages ahead of prices as was the case in the 1950's. The economy overall grew by 37% during the 1950s and unemployment remained low, about 4.5%. At the end of the decade, the median American family had 30% more purchasing power than at the beginning.