For the United States in the 21st century, folly has taken two forms. First, it manifests in the Trojan horse of decades-long economic capitulation and submission to the Chinese Communist Party’s geo-economic agenda. This is finally changing, but only after the loss of hundreds of billions of dollars in intellectual property through technology transfer and outright theft. The second form of folly is the slow draining of our financial might and future flexibility through the accumulation of massive and unprecedented amounts of government debt. It is this second folly to which we now turn.
The U.S. government has been in a long period of self-deception with regard to a 20-year-long run of deficits and growing indebtedness to fund them. The consequences of this multi-decade wooden-headedness are beginning to be revealed.
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By September 2020, total U.S. government debt was a mind-boggling $26.9 trillion following nearly $3 trillion of pandemic relief spending and $2.1 trillion decline in national income resulting from economically crippling lockdowns in many of our largest states. Looking at it differently, the national debt represented 62 percent of GDP in 2007, but has since more than doubled to over 127 percent. Cumulatively, the U.S. government (across both Democratic and Republican administrations) has added over $21 trillion of debt in the 21st century to support spending beyond its means of revenue generation.
How has all this debt been financed? China and other countries substantially increased their claims on U.S. assets following the financial crisis. In 2007, debt held by foreigners was about 15 percent of GDP. Since then, it has more than doubled to 33 percent. America’s net asset position (what we own of others less what others own of us) has been negative and in steady decline for 20 years. This foreign accumulation has not been a particularly good thing for America. Debt is simply a future claim on assets (cash in the case of U.S. Treasury securities). If this funding had been primarily invested in infrastructure and technology that boosted future productivity and national wealth, it would be much less of a problem. In this case, however, foreign buying has fueled our consumption-driven economy and entitlement programs, which will never produce a return on investment. Foreign borrowing for non-productive uses has thus robbed our children of America’s future economic bounty. This has worked out well for China and other foreign buyers, as U.S. government debt was seen as a safe haven investment in the world’s reserve currency, even if those investments yielded close to zero.
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