US National Debt Reaches Historic High of $1,000 Billion

During the Corona crisis, countries around the world printed their fiat currency significantly and borrowed extra money. Not surprising given that resources and safety nets were needed in a short time to limit the damage of the pandemic.

US debt is spiraling out of control

In some countries, debt is starting to grow very quickly. This is the case, for example, with America. Figure 1 shows an overview of the national debt. The first thing that is striking is that debts have been increasing over the years and the trend is therefore clearly upwards. The second worrying point is that these debts are rising at an accelerating rate.

national debt america
Figure 1: US government debt (FRED)

Debt took three-quarters of a century to reach $600 billion, the period just before the Corona crisis. Remarkably, we saw a number of declines, such as during the period that George W. Bush was president, from 2001 to 2009. When the pandemic was a fact, we see that the US government had a debt of around $930 billion. It is an increase of more than $300 billion and is half of all debt accumulated in the past.

Consequences of printing money

The rapid increase in debt is a major concern. High government debt can cause various problems, including higher inflation. If a government cannot finance its debt by borrowing more or raising taxes, they may decide to print additional money. This is also exactly what happened. If we look at the numbers, we see that in 2020 alone, $3,300 billion was printed. According to estimates, there is almost $13 trillion printed in dollars.

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In extreme cases, printing money can lead to hyperinflation, where prices rise so fast that normal economic activity is disrupted. This can happen when people lose faith in the value of the currency, making the currency essentially worthless.

Fortunately, inflation in America seems to be cooling down a bit. A year ago inflation was still 8.58%. This is now around 4%. Inflation figures are somewhat higher in the Netherlands. Last July, the value rose 5.7% peaking in September 2022 at 14.5%.

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