The national debt reached $30 trillion this month. Not only is it the largest debt in US history in dollar terms, but the ratio of debt to gross domestic product is 119%, the highest ever. And things only get worse. The Congressional Budget Office predicts that the gigantic debt-to-GDP ratio will double over the next three decades. The Highway Trust Fund will become insolvent this year. Medicare Part A will run out of money in fiscal year 2026 and Social Security will go bankrupt in fiscal year 2033.
Today, Americans are beginning to experience inflation, one of the major costs of rapidly growing national debt levels. Every day we hear that supply chain challenges and the pandemic are to blame, but they are not the only culprits. “Inflation is always and everywhere a monetary phenomenon,” said Milton Friedman. To help fund $5.9 trillion in Covid relief, the Federal Reserve purchased Treasury debt from third parties, usually large banks known as prime dealers, and then with a few keystrokes the Fed simply created a new set of credits in its books for sellers. Due to the addition of these credits, in two years, the Fed’s balance sheet has doubled to almost 9,000 billion dollars, creating a risk of significant and sustained inflation.