For months, headlines have been filled with negative projections and data regarding the national debt. With economic uncertainty reigning over markets and the looming prospect of further interest rate hikes a constant threat, many Americans still harbor concerns, as recent data shows. President Joe Biden has blamed this popular bleak economic outlook on the media. One example of that negative coverage may be a recent Washington Post Editorial Board opinion piece arguing that rising interest rates pose a significant danger to the national debt. But not everyone agrees with this perspective. In fact, one financial expert has responded to the op-ed with a contrasting take on the subject.
Morris Pearl is Chair of Patriotic Millionaires, a group focused on ensuring that high net-worth individuals pay their fair share. A seasoned Wall Street professional and former BlackRock (NYSE:BLK) Managing Director, Pearl is well-schooled in economic theory and policy. And as he laid out, Pearl feels that Americans shouldn’t be too concerned with the national debt.
The National Debt: Not as Bad as We Think
The title of the Washington Post Editorial Board’s opinion piece summarizes its argument succinctly: “Higher interest rates mean greater danger for U.S. debt.” It also reminds us why many Americans are concerned with the national debt. The article highlights the fact that the interest rate for 10-year Treasury bonds is at “a nearly two-decade high” as a major point of concern. “This will significantly add to the federal government’s expenses and raises the urgency to lower the deficit,” the article predicts.
Pearl doesn’t agree with this outlook, however. He described the article’s argument as “another example of deficit fearmongering based on discredited economic theories.” In a recent interview with InvestorPlace, the expert provided further context for his take on these key macroeconomic trends.
Pearl argues that Americans shouldn’t be concerned by the expanding of government securities. He emphasizes that the federal government running out of funding for social programs won’t be a problem because the U.S. issues its own money. Pearl adds that we should view the trend of expanded government securities as a sign of economic growth, as they “essentially promise a share of the nation’s future wealth.” As Pearl sees it, more money is actually a necessity.
Pearl noted in his interview with InvestorPlace:
“The fact is that we need more dollars as we have more stuff. The population is going up every year. We have millions more people in our country than we did last year. The amount of stuff we’re all producing is going up. And so the amount of money should go up in proportion to that, which it does in general over time, not every month or every quarter, but over the long term it generally does. So we should be expanding the amount of money in existence, the number of dollars in existence. And government securities are just a way of doing that essentially […] I don’t think that is a problem.”
Examining the Gold Standard in Context
In his response to the Washington Post opinion piece, Pearl refers to “discredited economic theories.” Specifically, Pearl elaborated to InvestorPlace that he is referring here to the gold standard economic theory, which is popular in the Austrian School of economic thought. However, the U.S. economy operates on the currency system for a reason. Per The Atlantic:
“The gold standard limited central banks from printing money when economies needed central banks to print money, and limited governments from running deficits when economies needed governments to run deficits. It was a devilish device for turning recessions into depressions.”
The Atlantic also notes that most academics do not support the gold standard theory. In 2012, economist Richard Thaler shared a poll in which zero economists supported a return to the gold standard. Others have cited many cases against it, arguing that a return to the gold standard wouldn’t stabilize inflation or exchange rates.
Much has changed since the days of the gold standard. As Pearl notes, money “does not represent gold or anything else” now. He adds that the U.S. is no longer an economy in which there exists a direct relationship between dollars and “finite things” like gold. “Every dollar in existence represents a liability of either the U.S. Treasury or the U.S. Federal Reserve, one or the other […] The total amount of that, yes, goes up over time,” he states. “And that’s a good thing.”
Is It Getting Political?
If the rising national debt isn’t as big of a deal as it may seem, why is it receiving so much attention? One reason may be political. Republican leaders have a history of attempting to weaponize the national debt and deficits during a Democrat presidency. This happens despite the fact that tax cuts from former President George W. Bush and former President Donald Trump have added $10 trillion to the U.S. debt.
Pearl also calls this trend out in his letter, accusing conservative politicians of “capitalizing on the public’s under-informed fears of overspending to justify cutting programs that help working Americans.” As he adds, Republicans only tend to criticize spending when it is done by Democrats. The lack of complaining from the GOP in 2017 when Trump passed the Tax Cuts and Jobs Act (TCJA) serves as a key example. This bill, according to the nonpartisan Economic Policy Institute, provided significant benefits to wealthy Americans and corporations. However, it did little to help working families.
What Comes Next?
Despite these uncertain times, Pearl maintains that Americans should not be overly concerned about the national debt. He also notes, however, that the average American should be moderately worried about rising interest rates, stating that on a scale of one to 10, the appropriate level of concern is a five or six. As Pearl noted to InvestorPlace:
I think [rising interest rates are] a problem for a lot of people in America, particularly people that are trying to buy houses, buy cars […] It’s increasing their monthly payments and it’s putting it out of reach for some people.
Lastly, though, Pearl maintains that the trend of expanding government securities is ultimately good for the economy — and should be regarded as such.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.