President Trump’s Debt Increase is a Third of Obama’s Debt Increase and the President is Decreasing the Debt to GDP Ratio
Guest post by Joe Hoft
In spite of the fact that President Trump took over with nearly $20 trillion of debt and the related interest payments on the debt, and in spite of the Federal Reserve (FED) under Janet Yellen increasing interest rates by a full 1 percent since the 2016 election, President Donald Trump’s debt is one third and $1.2 trillion less than Obama’s.
The US Debt since President Trump was inaugurated on January 20th, 2016 through today has increased by only $547 billion. On inauguration day the debt was at $19.9 trillion and on February 7th, 2018 the debt stood at $20.5 trillion.
Although a half a trillion dollars is a lot of money added to the debt, it is a fraction of what President Obama added during the same time frame in his first year plus in office.
Where President Trump increased the Debt to date by only 2.7% , Obama increased the debt by 16.2% or 13.5% more than President Trump.
President Obama inherited a US Debt amount of $10.6 trillion on his inauguration and increased it by more than $1.7 trillion by the end of his first year in office.
Obama increased the US Debt amount by $1.2 trillion more than President Trump in the same respective time in office. In addition, President Trump has been able to limit the amount of new debt in spite of the massive increase in debt from Obama ($10 trillion) and the rising interest rates initiated by the Fed.
Right after Barack Obama was elected President, on December 16, 2008, the Federal Reserve (The Fed) lowered the Fed Funds rate by an entire percent, from 1% down to 0% . The Fed had not lowered the Fed Funds rate by such a large amount (1% ) since at least before 1990, if ever. The Fed kept this 0% rate for most of Obama’s eight years in office.
CNBC reported in December 2015 that President Obama oversaw “seven years of the most accommodative monetary policy in U.S. history” (from the Fed). The Fed Funds rate was at zero for most of Obama’s time in office. Finally, in December 2015 the Fed announced its first increase in the Fed Funds rate during the Obama Presidency.
The only Fed Funds Rate increases since 2015 were after President Trump was elected President. The Fed increased the Fed Funds Rate on December 14, 2016, March 15th, 2017, June 14, 2017 and again on December 13, 2017. Four times the Fed has increased rates on President Trump after doing so only once on President Obama late in his 2nd term.
The Fed Funds Rate greatly impacts the economy:
Lower interest rates usually spur the economy by making corporate and consumer borrowing easier. Higher interest rates are intended to slow down the economy by making borrowing harder.
If the Federal Reserve was political and wanted to prevent Republican Presidents from successful economic growth and debt decreases, then the Fed would increase the Fed Funds rates during Republican Presidents’ terms while decreasing the Fed Funds rates under Democratic Presidents’ terms. This appears to be exactly what the Fed is doing and the market is reacting negatively this past week because of it..
Increases in the Fed Funds Rate increase the cost of borrowing and the largest borrower in the world is the US government. With $20 trillion in debt, a 1% increase in interest payments equals $200 billion in annual interest payment increases.
President Obama benefited from the lowest possible interest rates possible for most of his eight years and in spite of this, nearly doubled the US Debt from $10 trillion to nearly $20 trillion.
Another impressive economic indicator for President Trump is related to the debt to GDP ratio. The higher a country’s debt to GDP ratio, the less healthy the country’s economy. With the GDP numbers released at the end of 2017, President Trump’s policies have officially decreased the Debt to GDP ratio by 1.2% in the President’s first year in office.
In contrast, President Obama increased the US Debt to GDP ratio his first year in office by 14.5%. Obama increased the same ratio a total of 37% over his 8 years in office.
The US GDP has increased each quarter in 2017 with the 4th Quarter GDP increasing to $19.739 trillion – the highest GDP for any country in world history.
Also President Trump has curtailed US spending. The result is that the US Debt to GDP ratio decreased in 2017 from 105% to 104%.
No President in more than 50 years has decreased the Debt to GDP ratio in his first year in office by more than 1%. The last President to do so was Nixon in 1969. Presidents Reagan and George W. Bush decreased the Debt to GDP ratio in their first years in office but by less than 1%.