There is a distinction between national debt and deficit. For example, the United States had an awe-inspiring $26.70 trillion in debt as of August 31, 2020. But that doesn’t account for budget deficit, which changes with each new budget that passes through the U.S. Congress. Debt is how much the United States owes to lenders. Deficit is the net “income” of our country. It’s usually in the negative numbers. That means we’re not making more money than we spend, which is why the national debt continues to grow.
To answer the obvious question: no, President Biden will not “erase” the national debt. It’s impossible. The best any president can hope for right now is to ease the increasing budget deficits and right this ship before it sinks any further.
It’s not like the United States government can hire a debt settlement lawyer to wipe the slate clean. And our national debt is projected to continue growing. Is anyone worried about it? These days, only the party opposition — and then once the tables turn and the opposition is in power, they seem less inclined to care. This trend could result in a number of doomsday scenarios.
Right now, borrowing money from other countries — like, say, China — isn’t as big a problem because interest rates are historically low. But the real worry of growing debt is that sooner or later the United States could default on a payment, lowering our credit rating in the eyes of the world, and making it harder or impossible to secure future borrowing. And you never really know when we might need to borrow.
Another obvious scenario results from foreseeable events. The less money the country has onhand, the more difficult it is to fling it around. And why would we need to “fling it around?” Because man-made climate change will result in rising tides, populations shifting, erratic weather, natural disasters, and perhaps more frequent pandemics — and we don’t need more of those. With less money, we can expect a reduced response.
The CBO also warns: “If the federal debt stayed at its current percentage of GDP or increased further, the government would find it more difficult to undertake similar policies [another stimulus] under similar conditions in the future. As a result, future recessions and financial crises could have larger negative effects on the economy and on people’s well-being. Moreover, the reduced financial flexibility and increased dependence on foreign investors that accompany high and rising debt could weaken U.S. leadership in the international arena.”
The CBO added, “That increase in interest rates would reduce the market value of outstanding government bonds, causing losses for investors and perhaps precipitating a broader financial crisis by creating losses for mutual funds, pension funds insurance companies, banks, and other holders of government debt — losses that might be large enough to cause some financial institutions to fall.”