Speaker 1: The US government has a serious spending problem. It's thrown
Speaker 1: money at military needs, roads digging out of the pandemic,
Speaker 1: mostly using cash it doesn't have in the bank. Just
Speaker 1: like the rest of us paying off a loan, the
Speaker 1: government has to pay interest on what it borrows. Over
Speaker 1: the past decade, those interest payments have crept up. They've
Speaker 1: become a bigger and bigger slice of federal spending, and
Speaker 1: soon America will need to spend more each year paying
Speaker 1: off that debt interest than it spends on national defense.
Speaker 1: I've asked my sources at Treasury, in Congress, and even
Speaker 1: some historians. No one can think of us ever being
Speaker 1: here before. Everyone agrees we have a problem, but what
Speaker 1: no one can agree on is where the buck stops
Speaker 1: to fix it. America's debt is spiraling out of control.
Speaker 1: It's over thirty four trillion dollars right now, and if
Speaker 1: it feels like every other month Congress is nearly avoiding
Speaker 1: a government shutdown over spending, that's because it kind of is.
Speaker 1: This week, we'll look at how we got here and
Speaker 1: what it will take for Washington to fix it. From
Speaker 1: Bloomberg's Washington Bureau. This is the Big Take DC Podcast
Speaker 1: I'm your host, Seleijamerson. Borrowing money is not always a
Speaker 1: bad thing. In seventeen ninety, Alexander Hamilton wrote that debt
Speaker 1: was the price of liberty. In Lynn Manuel Miranda's musical
Speaker 1: about Hamilton's life, you can hear the young Treasury secretary
Speaker 1: pleading with the other founding fathers.
Speaker 2: If we are.
Speaker 3: Hums jumla a credit a financial.
Speaker 1: Tal you reddit without debt, He rap argues, the US
Speaker 1: couldn't fund the fight to become an independent nation.
Speaker 2: We needed money and guns in half a chance who
Speaker 2: provided those funds?
Speaker 1: So the US has really leaned into debt, so much
Speaker 1: so that the last time the country has zero debt
Speaker 1: was in eighteen thirty five. That's because each year the
Speaker 1: US creates a massive budget. It's money that keeps the
Speaker 1: economy moving, even when faced with challenges like a once
Speaker 1: in a lifetime pandemic. But when the federal government wants
Speaker 1: to spend more than it's bringing in through taxes and
Speaker 1: other revenue, it has to borrow from other countries and
Speaker 1: the private sector. That gap between our money in and
Speaker 1: our money out is called a deficit.
Speaker 4: Good think about it for your household. If everything I
Speaker 4: owe is bigger than the assets I have. I'm in
Speaker 4: a deficit.
Speaker 1: My colleague Liz McCormick and I have spent a lot
Speaker 1: of time talking about the deficit. She's a chief correspondent
Speaker 1: at Bloomberg covering debt and currency markets.
Speaker 4: So for the US, all the net revenues they're taking
Speaker 4: in after they pay out all their expenses, they're in
Speaker 4: the red.
Speaker 1: Unlike a household spending more than it's bringing in. It's
Speaker 1: okay for the US government to live its life in
Speaker 1: the red.
Speaker 4: We have the global what they call reserve currency, meaning
Speaker 4: many things are priced in US dollars. It gives us
Speaker 4: this kind of special status. No one quite thinks the
Speaker 4: US is going to kind of really default.
Speaker 3: On their data.
Speaker 1: In other words, people trust that the US will pay
Speaker 1: back its loans eventually, and they trust so deeply that
Speaker 1: it's good for its dollar that they rely on it
Speaker 1: as the backbone of the global economy. That's one reason
Speaker 1: why America can run up such a high bill. But
Speaker 1: lenders still want something in exchange for buying US debt.
Speaker 4: There's no free lunch, so they're saying, yeah, hear, US
Speaker 4: Treasury take our money. We like you take it, but
Speaker 4: give me something every month because I'm kind of putting
Speaker 4: my money to you and I can't use it right,
Speaker 4: so please give me some what we call interests.
Speaker 1: So when the government wants to fund a program, say
Speaker 1: a new part for medicare, building a bridge, or helping
Speaker 1: allies like Israel or Ukraine, even if we don't have
Speaker 1: that money set aside, we can borrow it at a
Speaker 1: very low cost to taxpayers. That's helped get out of
Speaker 1: some really sticky situations. You may recall what newscasters and
Speaker 1: headlines sounded like during the financial crisis.
Speaker 4: Three of the five biggest independent firms on Wall Street
Speaker 4: have now disappeared.
Speaker 1: Wherey investors now wonder how the markets will recover from
Speaker 1: billions of dollars of bad mortgage debts, frozen credit markets,
Speaker 1: banks afraid to lend.
Speaker 3: We are in the midst of a serious financial crisis.
Speaker 1: That last clip was President George W. Bush speaking in
Speaker 1: two thousand and eight, when the government used spending to
Speaker 1: prop up a flailing economy, but that came with a
Speaker 1: price tag of hundreds of billions of dollars. The federal
Speaker 1: deficit nearly tripled from what it had been before the crisis.
Speaker 2: Now every family knows a little credit card debt is manageable.
Speaker 1: That's President Barack Obama speaking in twenty eleven.
Speaker 2: But if we stay on the current path, our growing
Speaker 2: debt could cost us jobs and do serious damage to
Speaker 2: the economy. More of our tax dollars will go toward
Speaker 2: paying off the interest on our loans. Businesses will be
Speaker 2: less likely to open up shop and hire workers. In
Speaker 2: a country that can't balance its books, interest rates could
Speaker 2: climb for everyone who borrows money.
Speaker 1: In twenty thirteen, US debts are passed the country's GDP.
Speaker 1: When President Donald Trump took office, he worked with Congress
Speaker 1: to cut taxes as a way to help grow the economy.
Speaker 1: Those tax cuts will add an estimated two and a
Speaker 1: half trillion dollars to the nation's deficit in the next
Speaker 1: decade or so. And then COVID hit and lawmakers were
Speaker 1: desperate to keep the economy afloat.
Speaker 3: First, those stimulus checks up to fourteen hundred dollars for
Speaker 3: about ninety percent of households.
Speaker 1: Were making sure that small businesses have access to loans
Speaker 1: for their fixed.
Speaker 3: Costs, and expanded unemployment insurance.
Speaker 4: During the pandemic, even as are borrowing shot up as
Speaker 4: it kind of should in a crisis. We didn't want,
Speaker 4: you know, companies and people to personally fail and not
Speaker 4: be able to fund their life, so there was a
Speaker 4: lot of fiscal support. The FED was cutting rates down
Speaker 4: to zero.
Speaker 1: Let's recap to keep the economy from creatoring the government's spent.
Speaker 1: And then the Federal Reserve said, let's make it really
Speaker 1: easy for people to borrow even more so that they
Speaker 1: keep spending. So the FED slashed interest rates, making it
Speaker 1: cheaper to take on debt.
Speaker 4: But that's all been turned on its head now because
Speaker 4: because of inflation, the Fed has had to lift rates
Speaker 4: to like a twenty two year high.
Speaker 1: That twenty two year high is a shock to the
Speaker 1: economy right now. People and companies have gotten so used
Speaker 1: to low interest rates that now everyone's adjusting to how
Speaker 1: much more they have to pay for everything from car
Speaker 1: loans to mortgages. And higher rates are hurting the governments
Speaker 1: while at too.
Speaker 4: And that's made the Treasury, every time they pay interest semiannually,
Speaker 4: pay a lot higher interests. I mean, our interest expense
Speaker 4: is almost the amount of you know what we're paying
Speaker 4: for big other categories like defense.
Speaker 1: In twenty twenty three, the cost of just paying off.
Speaker 1: The interest on US debt reached a trillion dollars coming up.
Speaker 1: As the US debt continues to climb, what's the growing
Speaker 1: cost to taxpayers? The US debt has been climbing for decades,
Speaker 1: but to understand why experts think now is different, I
Speaker 1: wanted to talk to someone who's seen how the budget
Speaker 1: is handled from the inside. So I sat down with
Speaker 1: Philip Swagel. He's the director of the Congressional Budget Office
Speaker 1: or CBO. It's a non part as an agency funded
Speaker 1: by Congress.
Speaker 3: We provide the Congress with budget analysis and economic analysis.
Speaker 3: We would never say to a member of Congress, your
Speaker 3: bill is the right thing or the wrong thing. We
Speaker 3: just provide analysis.
Speaker 1: If you're following news coverage of a proposed law, you've
Speaker 1: probably heard CBO's estimate for how much that legislation will
Speaker 1: affect the national debt.
Speaker 4: The Congressional Budget Office released their ten year baseline for
Speaker 4: farm bill spending. The Congressional Budget Office estimates these changes
Speaker 4: could cost more than ninety billion dollars over the next
Speaker 4: two years.
Speaker 1: Swegel told me that there are two main reasons we
Speaker 1: should care that the government can't get its debt under control. First,
Speaker 1: it means that we have to spend money paying off interest,
Speaker 1: as in managing the debt load, instead of using that
Speaker 1: money for programs that actually help people. And second, it's
Speaker 1: only going to get worse when.
Speaker 3: We have higher interest rates, more debt, we pay more
Speaker 3: in interest, and then that builds back into the debt,
Speaker 3: which leads to yet higher debt and higher interest payments.
Speaker 1: So it's a spiral.
Speaker 3: We are in a spiral. Now, it's a slow spiral,
Speaker 3: but it's still a spiral of rising debt and rising
Speaker 3: payments on the debt. The situation is unsustainable.
Speaker 1: Just this week, Nassim Nicholas Teleb, a former option strader
Speaker 1: who wrote a book about unpredictable events called The Black
Speaker 1: swam On, told a hedge fund that he advises that
Speaker 1: a debt spiral is like a death spiral. He's not
Speaker 1: the only one with eyes on the economy who's been
Speaker 1: raising alarm bells. A few weeks ago, Robert Rubin, the
Speaker 1: former Treasury secretary, put it bluntly on Bloomberg TV. No,
Speaker 1: I think we're in a terrible place. And this is
Speaker 1: all while the US has had some of the cheapest
Speaker 1: interest rates of any country in the world. That's because
Speaker 1: America has a solid record of paying back its loans,
Speaker 1: so other countries cut a sweet deal when they loan money.
Speaker 1: But that could all change. If the US keeps borrowing
Speaker 1: from other countries and racking up a high bill and
Speaker 1: continues to squabble over paying its debt, the country and
Speaker 1: the US dollar could lose its favorite status. It's not
Speaker 1: enough to avoid a default. Just the fighting is hurting
Speaker 1: the country. It's like when parents fight and threaten to
Speaker 1: divorce but don't. Just because they stay together doesn't mean
Speaker 1: the fights don't cause damage. Our only hope for a
Speaker 1: way out of this debt spiral is for Congress to
Speaker 1: balance the budget, but that requires some hard decisions about
Speaker 1: where to cut spending in Congress is famously deadlocked.
Speaker 4: I don't want to be too pessimistic, but I just
Speaker 4: don't see the political will down in Washington right now
Speaker 4: to change their tune. We can't seem to work across
Speaker 4: the aisle and get these agreements that would work to
Speaker 4: put us at least on a trajectory where the deficit
Speaker 4: should be getting better.
Speaker 1: Right Even passing a basic spending bill has turned into
Speaker 1: a high wire act, haunted by regular government shutdown threats,
Speaker 1: So getting through any serious cuts is going to be hard.
Speaker 3: The challenge is that at any moment, we don't have
Speaker 3: to take action, right.
Speaker 1: So it's hard to imagine folks in governments suddenly getting
Speaker 1: inspired to take action. But there is at least one
Speaker 1: example of a time when it got its act together.
Speaker 1: Swegel says that back in the nineties, people thought that
Speaker 1: the US might fully pay off its debt, and they
Speaker 1: were worried about that.
Speaker 3: And that's because of the privileged place of treasury securities.
Speaker 3: The treasury debt has an important role in the global economy.
Speaker 3: A treasury bond is an asset for the private sector
Speaker 3: that is seen as safe and seen as liquid, and
Speaker 3: so if investors want an asset with those characteristics, the
Speaker 3: ability to buy and sell treasury bonds is important to
Speaker 3: financial markets.
Speaker 1: That fiscal responsibility didn't happen by accident. It essentially took
Speaker 1: investors bullying President Bill Clinton's administration. Here's how that went.
Speaker 1: Investors were against the government's unsustainable spending, so they revolted.
Speaker 1: They started dumping their treasury bonds, and when those bonds
Speaker 1: flooded the market, they appeared a whole lot riskier. It
Speaker 1: was your basic laws of supply and demand at play.
Speaker 1: When treasures are seen as even a tiny bit riskier,
Speaker 1: buyers demand a higher return on their investment, kind of
Speaker 1: like how your home insurance costs more if you live
Speaker 1: in a flood zone. To recap, investors sold off treasuries,
Speaker 1: which drove prices lower, but that drove up the amount
Speaker 1: buyers demanded in exchange for each bond. That made it
Speaker 1: more expensive for the government to borrow, and treasuries guide
Speaker 1: the interest rate for all sorts of debt like home
Speaker 1: mortgages and other consumer obligations. So all of a sudden,
Speaker 1: you've got the makings of an economic slowdown, which is
Speaker 1: every elected leader's nightmare.
Speaker 4: Back in the Clinton days, you know, James Carville, his advisor,
Speaker 4: always joked, like, I thought I'd want to come back
Speaker 4: as what do you say, like a great baseball player
Speaker 4: or the pope or something. And then he's like, I
Speaker 4: want to come back as the bond market. Because Clinton
Speaker 4: wanted to do all the spending and bond yields just
Speaker 4: one crazy.
Speaker 1: Clinton was forced to change his whole economic agenda just
Speaker 1: to keep investors happy and prevent an economic crisis. Back
Speaker 1: in the nineties, debt interest wasn't skyrocketing like it is today,
Speaker 1: so it's a bit of an Apple's to Walnuts comparison.
Speaker 1: But it's possible that the same kind of pressure from
Speaker 1: markets could help.
Speaker 4: Now. Maybe if bon Yeals just keep going and going
Speaker 4: in this situation gets worse and worse, maybe somebody gets
Speaker 4: religion and says we need to do something. But I
Speaker 4: think it's going to take a lot.
Speaker 1: Thanks for listening to The Big Take DC podcast from
Speaker 1: Bloomberg News. I'm Salaia Mosen. This episode was produced by
Speaker 1: Julia Press and Naomi Shaven. It was fact checked by
Speaker 1: Stacy Rede. Alex Sugia and Blake Maples are mix engineers.
Speaker 1: Our story editors are Caitlin Kenny, Wendy Benjaminson, and Michael Shephard.
Speaker 1: Nicole Beemsterbower is our executive producer. Sage Bauman is our
Speaker 1: head of podcasts. If you like what you heard, please
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Speaker 1: be back next week.