Dr. David D. Schein examines America’s $40 trillion national debt, Trump’s pressure on the Federal Reserve, rising interest costs, inflation, oil prices, consumer debt, public pensions, tariffs, and the political risk of an economy that many Americans still do not feel is improving.
America’s national debt has now crossed $40 trillion, and for me that number casts a cloud over almost every other piece of economic news.
When I wrote Decline of America: 100 Years of Leadership Failures in 2018, the national debt was just over $21 trillion. Eight years later, it has nearly doubled.
I do not blame one president or one political party for this. Politicians from both parties helped build this mess. But President Trump is now dealing with the consequences, and the decisions made by Trump, Congress, and the Federal Reserve over the next several years could determine whether the problem stabilizes or becomes much worse.
Think about the national debt the same way you think about a credit card balance.
If you keep carrying the balance, keep borrowing, and never seriously reduce what you owe, eventually the interest becomes a major expense all by itself.
That is what worries me most.
The innocent-sounding phrase is “servicing the debt.” What it really means is that taxpayers are paying an enormous amount of money just to keep the debt rolling forward.
When the Federal Reserve keeps rates high to control inflation, those higher rates also make government borrowing more expensive. That is one reason I believe Trump keeps pressuring the Fed to lower rates.
But lower interest rates are not a solution to irresponsible spending. They might reduce some pressure. They do not erase $40 trillion.
My position is simple: the federal government is too large and too expensive.
I sometimes describe the problem this way.
We send $100 to Washington. The federal bureaucracy takes a large part of it. The remainder gets sent back through programs to the states. The states then spend money that often does not feel like their own money. By the time the program finally reaches the person it was supposedly created to help, I believe only a fraction of the original $100 may be producing the intended benefit.
That is why I favor a much smaller federal government.
The states are not helpless. If a state wants a particular program badly enough, let the state explain it to its own taxpayers and fund it directly.
That creates more accountability than sending money to Washington, running it through layers of bureaucracy, and then pretending that federal money is free money.
I have also argued that federal and state pension systems need major reform.
Protect employees who are already vested. But for future workers, move toward 401(k)-style retirement systems like the ones millions of private-sector employees already use.
Why should taxpayers who are funding their own retirement through defined-contribution plans also guarantee government retirement systems that can be far more generous?
I recently discussed public pensions separately on Saving America because this is not a small issue. Unfunded retirement promises become another form of public debt, whether politicians put them in the same accounting category or not.
Inflation has moderated from its worst levels, but it is still above the Federal Reserve’s preferred target in the economic picture I discuss in this report.
That puts the Fed in a difficult position.
Keep rates high, and borrowing becomes more expensive for households, businesses, and the federal government.
Cut rates too aggressively, and inflation can become harder to control.
Trump wants lower rates. I understand why. But the deeper problem is still fiscal.
If Washington keeps spending beyond its means, monetary policy cannot rescue us indefinitely.
The economy does not exist in isolation from foreign policy.
High oil prices connected to the Iran conflict and uncertainty surrounding the Strait of Hormuz hit Americans directly.
Energy costs do not stop at the gas pump.
They move through transportation, food, manufacturing, retail, and almost everything that has to be produced or moved.
I am also not convinced that Trump’s latest public posture regarding American control of the Strait of Hormuz is helping the situation.
Whatever one thinks of the foreign-policy strategy, the economic consequence matters because Americans ultimately experience the economy through their bills.
Americans accumulated savings during the COVID period. After the crisis ended, spending increased.
The problem is that once those savings ran down, many households kept spending by borrowing.
That has produced record consumer-debt pressure in the economic picture I discuss here.
At the same time, retail sales weakened in the latest period covered in the report.
That combination should concern anyone watching the economy.
If consumers are carrying more debt while reducing discretionary spending, businesses eventually feel it too.
One of the more interesting indicators I follow is the fast-food business.
Price competition is intense because consumers notice restaurant prices immediately.
But cutting prices is not enough if customers believe the quality, value, or experience is not there.
Some chains are holding up better than others. Some locations are closing. That may sound trivial compared with the national debt, but consumer behavior often reveals economic stress before politicians acknowledge it.
I recently argued that the United States and Canada should cooperate rather than keep escalating their trade dispute.
Unfortunately, the tariff fight has returned.
I do not believe a lose-lose trade war between two neighboring economies is the smartest outcome.
At the same time, I support stronger enforcement where trade rules are being abused.
Trump’s elimination of the de minimis exemption is an example. The exemption allowed many shipments under $800 to enter without normal duties. When companies learned how to exploit that system by shipping enormous volumes in small packages, the policy stopped functioning the way it was intended.
There is a difference between protecting legitimate trade and allowing loopholes to become permanent business models.
Presidents can cite statistics. Economists can debate methodology. Politicians can blame each other.
Voters ask a much simpler question:
Can I afford my bills?
If gasoline is expensive, groceries are expensive, credit-card balances are high, housing remains difficult, and wages do not feel like they are keeping up, voters are not going to be impressed by a press release telling them the economy is strong.
That is why I think Trump and Republicans face real political risk if the economic picture does not improve before the midterms.
Trump may be able to argue that Democrats moved too far left. He may be able to argue that the problems were inherited. But eventually voters judge the people currently in charge.
The national debt is not an abstract number sitting on a government website.
It affects interest costs.
It limits future choices.
It increases pressure for taxes, inflation, or spending cuts later.
And it leaves future generations paying for promises made by politicians who may be long gone.
I have been warning about this since before I wrote Decline of America.
At $21 trillion, the problem was serious.
At $40 trillion, continuing to behave as though nothing fundamental has to change is reckless.
Trump cannot solve this alone. Congress cannot blame the Fed. Republicans cannot blame Democrats, and Democrats cannot blame Republicans.
Both parties helped create the problem.
Now somebody has to have the political courage to start fixing it.
Explore more Saving America commentary at DrDaveSavesAmerica.com.
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