HH Two Centuries Of National Debt In One Year: Putting 2020 In Perspective

The $4.5 trillion increase in the U.S. national debt in 2020 was so large as to be almost incomprehensible for the average person. Yet, every dollar of the new debt was entirely real. It will likely be with us for the rest of our lifetimes, and may profoundly change every aspect of our financial lives, including Social Security, Medicare, stock prices, gold prices, real estate prices, and the value of retirement accounts,

This analysis uses historical comparisons to help put 2020 in perspective, and make more concrete and tangible what really happened last year. It also explores the underlying issues, and shows why the actual situation is even worse than most people realize.

The analysis is part of a series of related analyses, which support a book that is in the process of being written. Some key chapters from the book and an overview of the series are linked here.

The Stunning Increase In The National Debt

According the to the U.S. Treasury Department, the national debt of the United States reached $27.7 trillion by the end of 2020. There was an unprecedented degree of government borrowing to try to limit the damage from the economic shutdowns that were used to try to slow and control the spread of the COVID pandemic. Paying for the total costs of the many stimulus programs, including the checks to individuals and households, increased the single year deficit to a stunning $4.5 trillion.

While it is too early to know what the total will be for 2021, the current political indications are that the next rounds of stimulus spending will be almost guaranteed to bring the national debt above $30 trillion sometime during the year. Indeed, a repeat of 2020 would bring the total national debt to $32.3 trillion by the end of the year.

As can be seen in the graph above, the rapid increase in the national debt in 2020 was by far the largest that has ever been seen. The next closest was the $1.7 trillion increase in the debt in 2010. The growth in the debt in 2020 was an extraordinary 2.7X time greater than the previous record.

What also needs to be remembered is that the annual deficits associated with the Financial Crisis of 2008 were themselves unprecedented, going far above any previous increase in the national debt. The $1.7 trillion increase in the national debt in 2010 had itself been almost 3X greater than the previous record of $598 billion, that had been set in 2004, as part of the attempt to contain the damage from the collapse of the Tech stock bubble and the associated recession.

What started in 2020 (and may still have a long ways to go) was the third round of the upwards explosion of the national debt over the last two decades. We saw record deficits in the attempt to contain the damage from the 2001 recession. There was a near tripling of peak annual deficits in the attempt to contain the damage from the 2008 recession. And we are now seeing yet another near tripling of peak annual deficits in the attempt to contain the damage from the 2020 recession.

Two near triplings in a row, with two rounds of major crisis and the containment of crisis, have produced about a 7.5X increase in peak annual deficits during crisis, when compared to the all time record that had previously been set in 2004.

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Disclosure: This analysis contains the ideas and opinions of the author. It is a ...

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