Fed Chairman to empty Senate hearing: ‘National debt growing faster than economy’

December 17, 2019

A star witness was called before Congress this week and delivered haunting testimony that may be cited as a downward inflection point in American history books for decades to come. It’s not the hearing you’ve heard about on the news. 

“The debt is growing faster than the economy, it is as simple as that in nominal terms, and that is the definition of unsustainable,” Federal Reserve Board Chairman Jerome Powell warned the Joint Economic Committee on November 13, 2019. “If we don't do it [fix this problem], our children will end up spending their tax dollars more on interest than on things they really need, like education, security, and health.”

By a remarkable coincidence of bad timing, these comments about the rapidly ballooning National Debt were to fall mostly on deaf ears. There were only 13 members of congress present, plus a few staffers and interns, at the mostly empty hearing on the second floor of the Hart Senate Office Building. Even the panel’s senior lawmaker, responsible for gaveling in their witness and leading questioning, arrived at the hearing late - not a great omen to begin on. At that very moment, much of the beltway media and political establishment were captivated by an unrelated but simultaneous hearing (you may have seen this one in the news), unfolding a couple of blocks away on the House side of Capitol Hill.

We don’t know what was going through the central banker’s head as he sat there in November waiting for the poorly attended hearing to start. When Jerome Powell had completed his undergraduate at Princeton back in 1975 the reported debt stood at $533 billion, or just a hair over 30 percent of the U.S. gross domestic product in that simpler era. By the time Powell assumed the top job at the Federal Reserve in 2018, the once simmering debt had boiled over to $22 trillion for the first time in U.S. history. That was last February. This month it hit a new all-time high: $23 trillion, more than 120 percent of the United States gross domestic product. It is on track to add another trillion dollars more next year. 

No psychologist would blame lack of public interest in the unfolding crisis on Mr. Powell’s oratory, or the dutiful C-SPAN camera crew that broadcast November's economic hearing to a worldwide audience of just 730 viewers. Most people don’t care, or they can’t keep caring year after year about a problem that seems so insurmountable and long in the making. No nation-state in human history has accumulated IOUs as massively as the United States currently holds. The U.S. debt to GDP ratio now dwarfs such fiscally responsible countries as Zimbabwe and Spain. These number-filled, end-of-times updates aren’t exactly the stuff of good television.

The nation’s senior newsroom editors might make more of the debt news if the underlying numbers themselves weren’t so wobbly. The National Debt as defined by the Treasury Department is a largely arbitrary measurement without foundation in the field of professional accounting. The meaning of debt in our household finances is simple by contrast: our bills, including our credit card debt, compared to the money we have to pay them. This is not the case for the purposes of the U.S. government. The Treasury’s reported “National Debt” includes debt held by the public and intragovernmental debt, which is the money the government has “borrowed” from its trust funds like Social Security. The National Debt skips over the negative balance of unfunded programs such as Social Security and Medicare. This is no trivial decision; Social Security, Medicare, and other entitlement programs are $84 trillion in the hole, representing very-real debts for all American taxpayers.

In a telling contradiction, United States law carries forceful penalties for any corporate financial officer foolish enough to try similar creative accounting techniques. Private sector organizations are required to list pension and retiree healthcare obligations (the corporate version of Social Security and Medicare) alongside their other standard debts, and for good reasons. Treasury policy seems to suggest that individuals deserve a clear look at the companies they invest in, but citizens don’t deserve a look at the government that they pay taxes to. This interpretation rests on a distinction without a difference, to the detriment of public accountability. If the laws and long-standing best practices that guide private sector accounting were applied to the U.S. Treasury, our true National Debt would reach not $23 trillion, but $120 trillion. That is the true count of U.S. indebtedness, using the definition of “debt” that all of us are familiar with in household and business context. 

These lengthy explanations might be part of why news about the debt does not fit well within limited-attention span soundbites. Responsible elected officials would do well to hunker down with the data and take on the truly existential problems facing the country. Failing to do so will continue to burden our children and grandchildren with an unprecedented debt.

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