Below is our translation of an article from RIA Novosti with comments and notes in brackets by Vince Dhimos.
Trump costs Americans a trillion dollars a year
October 8, 2019
MOSCOW, Nov 8 - RIA Novosti, Alexander Lesnykh. The US national debt broke the mark of 23 trillion dollars. Under Donald Trump, borrowing is growing at a record pace — more than a trillion a year. Why this happens and what it will lead to is reported by RIA Novosti.
During the presidential race, Donald Trump repeatedly accused the Democrats and Barack Obama personally of building up public debt. However, once in the White House, he only made the situation worse.
For about three years, the US Treasury issued bonds for $3.2 trillion, and the public debt per citizen, including the elderly and infants, increased by nine thousand dollars, to $69.7 thousand.
One of the main reasons for this is seen by economists as a sharp increase in social spending, partly thanks to the retirement of baby boomers (the so-called birth spike in the middle of the last century). This is, by the way, the generation to which Bill Clinton, George W. Bush the younger and Donald Trump himself belong.
[The author does not mention the elephant in the room: overspending on arms acquisitions. Of course, it does not pay Russia to discourage this because they have no interest in keeping the US from further bankrupting itself. Nor does it pay to focus on the errors of Trump because, for all his flaws, the Democrats are more Russophobic]
Spending borrowed money on social payments, the American government painted itself into a corner: budget spending on servicing the public debt reached $600 billion. This is more than allocated to education, transport, housing and agriculture combined. At the end of October, US Treasury Secretary Stephen Mnuchin announced that the budget deficit had almost reached a trillion dollars, an increase of 20% compared with fiscal year 2018.
To understand how destructive the 23 trillion state debt is for the American economy, we need to recall history.
The idea of borrowing to spend on the country owes to the first US Treasury Secretary, Alexander Hamilton. Three centuries ago, he proposed directing the funds raised through the issuance of government bonds to the development of the country's production and infrastructure. Together with the economic growth program he wrote, this served as the basis for the emergence of entire industries and allowed the United States to become a world leader, leaving the Old World far behind.
Using borrowed funds for virtually the opposite purpose, Obama and Trump achieved the opposite economic effect. In the past 12 years, every dollar in GDP growth has cost Washington $1.85 in public debt. And if now the debt burden is approaching 80% of GDP, then, according to Congress, by 2029 it will grow to 92%, and by the middle of the century it will be one and a half times the cost of everything produced in a year in the country.
Just print it
It is often said that Washington can at any moment reduce its public debt to zero by simply printing enough dollars. Trump himself thinks so - it is known that a year ago he discussed this option with the director of the National Economic Council, investment banker Gary Cohn.
"Cohn was shocked that Trump failed to understand even the simplest things," writes journalist Bob Woodward, a witness to that conversation.
Indeed, the Federal Reserve can turn on the printing press and release an additional 23 trillion dollars into free circulation, distributing them to securities holders. But at that point, hyperinflation is inevitable, which will destroy all the savings of citizens, and the importation of goods will become simply unprofitable. However, the American authorities seem to have no other options, since the demand for treasury notes is rapidly falling.
Indeed, the Federal Reserve can turn on the printing press and release an additional 23 trillion dollars into free circulation, distributing them to securities holders. But then hyperinflation is inevitable, which will destroy all the savings of citizens, and the import of goods will become simply unprofitable. However, the American authorities seem to have no other options, since the demand for treasury is rapidly falling.
Most of the credit for this belongs to the central banks of China, India, Russia, Turkey and several European countries, getting rid of US bonds and shifting funds into a more liquid asset. In September, Germany joined this group. The Bundesbank, the world's third largest gold reserves, resumed purchasing precious metals for the first time in 20 years and acquired 95 thousand ounces.
The sale of treasuries caused a so-called inversion whereby the yield on short-term securities became higher than on long-term ones, as occurred during the global crisis of 2008. Most economists consider this a sure sign of an impending recession, from which everyone who did not manage to exchange US debt securities for rapidly rising gold will suffer.
In order to prevent a debt collapse, the Fed is forced to re-launch the program of "quantitative easing" [money printing]: in early October, the head of this department, Jerome Powell, said that at least until the end of the second quarter of next year, the state would buy short-term treasury bonds on the market. In total, 510 billion dollars will be spent on this "technical" operation.