The national debt this month reached $30 trillion. Not only is this the largest debt in U.S. history in dollar terms, but the ratio of debt to gross domestic product is 119%—the largest it’s ever been. And things are only getting worse. The Congressional Budget Office predicts that the mammoth debt-to-GDP ratio will double over the next three decades. The Highway Trust Fund will likely become insolvent in 2027. Medicare Part A will run out of money in fiscal year 2026 and Social Security will go bust in fiscal 2033.
Now Americans are beginning to experience inflation, one of the primary costs of rapidly growing levels of national debt. Every day we hear that supply-chain challenges and the pandemic are to blame, but they aren’t the only culprits. “Inflation is always and everywhere a monetary phenomenon,” Milton Friedman said. To help finance $5.9 trillion of Covid relief, the Federal Reserve purchased Treasury debt from third parties, typically large banks known as primary dealers, and then with a few keystrokes the Fed simply created a new set of credits on its books for the sellers. Because of the additions of these credits, in two years the Fed’s balance sheet has doubled to almost $9 trillion, creating a risk of significant and sustained inflation.
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