The imagined national debt crisis: A long-running distraction 

Republicans in the House of Representatives appear to be so committed to reducing the national debt that in September 2024, they threatened to shut down the government to achieve their goal. House Speaker Mike Johnson (R-La.), recognizing that closing the government would do political damage to his party, once again relied on Democrats who actually care about keeping the government running to bail out the country. 

The right-wingers knew this would happen, and that they could extract a few ounces of flesh from the Democrats and Johnson in the process, because they had done it before. Anyone with an understanding of U.S. politics understands that Republicans would be shooting themselves in the foot if they tried to make significant cuts to popular programs like Social Security and Medicare.

Republican reactionaries would like to do it, but they won’t if they have to take responsibility for the political fallout. 

The Republican political strategy is to scare and confuse voters with ominous narratives about an impending debt crisis to distract them from issues like infrastructure, our lopsided income distribution and America’s overseas challenges that need investment and attention.  

Republicans claim that the U.S. is drowning in a sea of debt ($35 trillion as of late 2024). They repeat endlessly that the debt is on an “unsustainable path,” without having any idea how long that path might be. They accuse the federal government of being fiscally irresponsible and warn that our grandchildren will one day bear the burden of today’s “reckless” spending, but they don’t know if or when this might happen.  

The fact is that alarmists and economists who echo their scary rhetoric are guessing when they try to predict where the economy will go even a year from now. Knowing what the grandchildren will face is absolutely impossible.

Who in 2019 predicted the economic effects of the COVID-19 pandemic or the wars in Ukraine and the Middle East and adjusted economic policies beforehand? The vast economic dislocations, transformations and accumulations of debt that grew out of World Wars I and II also had to be managed as they happened because they were unforeseen.

Forecasting the future when it comes to things like these and something as complex as the national debt is a fool’s game. 

The metrics that are thrown around by the scaremongers on the way to the imagined debt catastrophe are meaningless. Debt, the worriers say, could reach levels not seen since 1945, or even surpass the size of the GDP altogether. So what? The actual economic landscape in 2024 tells a calmer story. The debt is growing, but the Federal Reserve recently lowered interest rates by 0.5 percent, with promises of further cuts. If debt disaster were imminent, this decline in rates would not be happening.

The Federal Reserve has tools at its disposal to keep interest rates falling, including buying Treasury bonds from its member banks. This drives borrowing costs down. After the 2008 financial crisis, the Fed used tools like these to hold 10-year interest rates around 2 percent for more than a decade, despite a growing national debt. Why assume that such policies won’t work in the future? 

Of the $35 trillion in U.S. national debt, only about $8-9 trillion is held by foreign countries. China, the debt hawk’s No. 1 boogeyman, holds only $816 billion or 2.3 percent of this $35 trillion. The rest — roughly $25 trillion — is held domestically by U.S. government agencies like the Social Security Trust Fund and military retirement funds, as well as private corporations. Foreign and domestic holders earn interest on their holdings, so the debt is a paying investment for them. For China and others, holding dollars also keeps their currencies cheap so they can export more. 

For foreign and domestic holders of U.S. debt, a key question is whose debt would you prefer to hold. If not U.S. debt, what debt is safer? In a world of uncertainty, foreign countries and investors are choosing the U.S. 

As Shakespeare put it in “Macbeth,” “Present fears are less than horrible imaginings.” To paraphrase, our fears about the future often overshadow the very real dangers of the present. This is the debt crisis in a nutshell. 

Instead of obsessing over a government debt crisis that may never happen, it makes more sense to borrow and spend money to mobilize our immense resources to deal with immediate problems, as we did in World War II. The U.S. needs to support stressed working and middle-class families, respond to dangerous conflicts in the Middle East and Ukraine, counter China’s growing global influence, and manage the transition to cleaner energy and the rise of artificial intelligence. 

Listen to Shakespeare. If the U.S. mobilizes to take care of its immediate problems, “horrible imaginings” about a future debt catastrophe will be dealt with if and when they need to be.  

Paul A. London, PhD., was a senior policy adviser and deputy undersecretary of Commerce for Economics and Statistics in the 1990s, a deputy assistant administrator at the Federal Energy Administration and Energy Department, and a visiting fellow at the American Enterprise Institute. A legislative assistant to Sen. Walter Mondale (D-Minn.) in the 1970s, he was a foreign service officer in Paris and Vietnam and is the author of two books, including “The Competition Solution: The Bipartisan Secret Behind American Prosperity” (2005).