Authored by Chris Hamilton via Econimica blog,

As of the latest Treasury update showing federal debt as of Wednesday, February 15…federal debt (red line below) jumped by an additional $50 billion from the previous day to $20.76 trillion.  This is an increase of $266 billion essentially since the most recent debt ceiling passage.  Of course, this isn’t helping the debt to GDP ratio (blue line below) at 105%.

But here’s the problem.  In order for the American economy to register growth, as measured by GDP (the annual change in total value of all goods produced and services provided in the US), that growth is now based solely upon the growth in federal debt.  Without the federal deficit spending, the economy would be shrinking.

The chart below shows the annual change in GDP minus the annual federal deficit incurred.  Since 2008, the annual deficit spending has been far greater than the economic activity that deficit spending has produced.  The net difference is shown below from 1950 through 2017…plus estimated through 2025 based on 2.5% average annual GDP growth and $1.2 trillion annual deficits.  It is not a pretty picture and it isn’t getting better.

Even if we assume an average of 3.5% GDP growth (that the US will not have a recession(s) over a 15 year period) and “only” $1 trillion annual deficits from 2018 through 2025, the US still continues to move backward indefinitely.

The cumulative impact of all those deficits is shown in the chart below.  Federal debt (red line) is at $20.8 trillion and the annual interest expense on that debt (blue line) is jumping, now over a half trillion.  Also shown in the chart is the likely debt creation through 2025 and interest expense assuming a very modest 4% blended rate on all that debt.

So, for America to appear as if it is moving forward, it has to go backward into greater debt?!?  If you weren’t troubled so far, here is where the stuff starts to hit the fan.

With the change to the Unified budget, effective as of 1969, the Social Security surplus was “unified” into the federal budget.  The government gave themselves a ready buyer for US debt while simultaneously allowing the SS surplus to be spent in “the present”.  Congressionally mandated to buy US debt, from 1970 to 2008, the Intra-Governmental Holdings (over half from the Social Security surplus) purchased over 45% of all federal debt issued.  This meant “only” 55% of US debt was auctioned into the market, or “marketable debt”.

But the annual SS surplus has declined by 90% (from over $200 billion a year at the peak in 2007 to perhaps $20 billion this year) and, according to the SS trust fund, the last surplus will be recorded in 2020 or 2021.  After that (or essentially now), the Congressionally mandated buyer (which consumed almost half of all US federal debt for 4 decades) will cease.  Not only will the IG Holdings no longer be a buyer, they will need additional debt created to make good on those $2.9 trillion in SS “reserves”…and all the debt issued will be “marketable”.

The chart below shows the “marketable” debt vs. IG Holdings from 1970 through 2025.  As noted above, IG consumed nearly half of all US debt up to 2008…but since ’08, IG has consumed just over 10% of all the new issuance and nearly 90% of new debt been auctioned into the market.  IG has essentially ceased to be a buyer…meaning that marketable debt will continue to soar…….more here