Wednesday, January 25, 2017

Barack Obama's Fiscal Legacy

Updated July 2017

With the Trump Administration now making its mark on Washington's fiscal future, I thought that it was a good time to revisit a subject that I haven't posted on for nearly two years, a look at the debt associated with each administration since the beginning of the Kennedy Administration in January 1961.  This posting will look at which administration was responsible for the greatest nominal increase in debt as well the percentage growth in debt and the compounded annual growth rate of the debt by administration.

The data used in this posting is sourced from the TreasuryDirect website which provides a daily debt update to the penny.  Since the daily data is not complete going back five decades, I have used the debt figures for the end of the month of January for each inauguration year.  In the cases of the Kennedy, Johnson and Nixon Administrations where their presidency ended or started abruptly in mid-month in mid-term, I have used the debt data from the end of their last/first month of service.  As well, it is important to note that I have used the total debt which includes both external market debt and intergovernmental debt in my calculations.

It is also important to look at the formula used to calculate the compound annual growth rate or CAGR of the debt during each presidency since this measure shows us the compounded average annual growth rate of the debt over the entire term of each president, reducing the effect of inflation on the debt.  Here is the formula used to calculate the compound annual growth rate:

Let's start with a table showing the data and calculations that are used for the graphs in this posting, noting that I have used the debt accrued up to the last full day of Barack Obama's presidency:

Now, let's look at a line graph showing what has happened to the debt over each administration:

As you can see, the growth in the federal debt nearly doubled from the Clinton to Bush II Administrations (growth of 86 percent) and again from the Bush II to Obama Administrations (growth of 87.6 percent).  Over that eight year period from 2008 to 2016, the cumulative rate of inflation was 11.5 percent meaning that only a tiny fraction of the growth in the debt can be attributed to a drop in the real value of money.  As well, perhaps it's just me but as the decades have passed, the growth in the debt looks to be increasingly resembling an exponential function where the value starts to parallel the "y" axis like this example which shows population growth versus time:

Here is a graph showing the nominal increase in the federal debt for each presidency:

Clearly, the Obama Administration is the "winner" in this category.

Here is a graph showing the percent increase in the federal debt for each presidency:

Obviously, two-term presidents are going to look worse; that said, we can easily see that the Reagan Administration was responsible for the largest percent increase in debt over its two terms, more than double the growth rate see by either the Bush II or Obama Administrations.

Here is a graph showing the compound annual growth rate of the federal debt for each presidency:

Once again, the Reagan Administration wins this category, followed by the Ford and Bush I Administrations.  Interestingly, although the debt grew by the most in nominal terms during the Obama Administration, it comes in at the midpoint of all administrations when it comes to the compound annual growth rate of the federal debt.

While the Obama Administration is responsible for nearly half of the $20 trillion debt, the situation would be far worse if the Federal Reserve had not stubbornly maintained its near-zero interest rate policies.  Given that the debt has nearly doubled since 2008, interest owing on the debt on an annual basis has barely budged; hitting $432.65 million in fiscal 2016 compared to $451.15 million in fiscal 2008.  For example, in December 2016, the average interest rate on marketable debt was 1.986 percent and on non-marketable debt was 2.798 percent.  This compares to 3.207 percent and 4.634 percent respectively in December 2008.  This tells us that the Federal Reserve is currently the best friend of the U.S. Treasury.

It is an interesting exercise to look at a history of the American federal debt and see how each administration has led us closer to the debt crisis point.  Should interest rates rise even to the levels seen in 2008 when the Great Recession was barely entrenched, the fiscal situation in Washington could reach the critical point and American taxpayers could find themselves spending more on debt interest payments than they currently are on entitlement programs  In any case, it looks like the Trump Administration may well have inherited a ticking debt time bomb.

Let's close this posting with a look back at a much younger presidential candidate, Barack Obama, from July 2008: 

By his own logic, does this make Barack Obama an even less responsible and less patriotic American than his predecessor?


  1. When Obama took office it was expected debt would stand at 12.5 trillion in 2019. When President Trump took office the National Debt Clock was ready to breach the 20 trillion dollar mark. The myth that a scenario of growth coupled with a falling deficit will allow us to outgrow many of the problems we face only brings with it a false optimism and hope.

    The ugly truth many people choose to ignore is that starting in 2017 entitlements will become the driving force that carries the deficit higher and higher into nosebleed territory. More about just how bad this problem is in the article below. .

    As for the huge percent increase during the Reagan years It is possible that much of it was because interest on the national debt spiked when interest rates soared to near 20% in an effort to halt inflation in 1980

  2. The majority of the increase in debut under Obama came from programs that were passed during the Bush administration. The programs were: Two New Wars, Two New Medicare Programs and Two Tax cuts.

    None of those program were paid for by sending cuts else where and new sources of revenue. For example, the two new wars were the first in American history that were not paid for by tax increases. During Vietnam there was a surtax, during Korea taxes increased by 4% of GDP and during WWII there were huge increases in taxes across the board. Other wars were handled in similar ways. We'll be paying for these things decades from. Now have huge financial obligations to pay for all the wounded veterans that are coming back from this war.

    The proof of this everywhere. In 2001, we had $235 billion annual surplus. The CBO said we'd pay off all the accumulated debt going back to the founding of the country by 2007, but Republicans actively opposed the surplus and paying down the debt.

    Greenspan opposed it because it would "distort the stock market," the Heritage Foundation said if there was a surplus, we need an immediate tax cut and Cheney said "Reagan proved deficits don't matter."

    It took one year before the Republicans had turned the surplus into a deficit. The tax cuts alone, dropped revenue by billion and by 2006, we had $2 trillion lost revenue compared to 2001. The last budget that Bush presented congress had $1.4 trillion deficit.

    In spite of the worst economic crisis since the Great Depression, Obama reduced the annual deficit almost every year he was in office:

    2009 - $1.4 trillion - Bush's last budget, presented congress in 2008.
    2010: $1.293 trillion
    2011: $1.300 trillion
    2012: $1.089 trillion
    2013: $679 billion
    2014: $485 billion
    2015: $438 billion
    2016: $587 billion

  3. The Federal Reserve publishes the Flow of Funds report showing that household net worth increased since 2009 by 84% nominally and 64% adjusting for inflation, from $48.9 trillion to $90.2 trillion. The debt is about $20 trillion. There are scholars proposing a tax on financial assets, see James Kwak. As the last comment showed, most if not all the debt problem Obama faced was caused from factors originating during his predecessor's term, particularly the failing economy which was in recession for the last 14 months of GWB's term, and ended 4 months into Obama's. The has graphs showing the amount of government spending after recessions and Obama's is markedly the lowest, in fact government spending decreased. Reagan's term marked the highest increase. Unemployment in 1933 stood at 25% and in 1937 at 9.6%, and that was due to government spending wisely to hire unemployed workers directly, the legacy of their work is evident still in many many ways -- air fields, high schools, water systems, roads especially and on and on. The Republicans continually blocked such proposals from Obama, such as the 2011 stimulus of $450 billion that was rejected. Our present dysfunctional health care system is twice as expensive as all other advanced nations, OECD studies show conclusively, and is the onus that threatens to drive the government debt future into very dangerous territory. Replacing this health care system with single payer is the logically and proven way to repair the threatening debt bomb. I write a blog too, and admire the graphs at this one. Economics Without Greed,, I read your post at the N. Roubini article at P.Syndicate.

  4. First, if Obama was so responsible for running up the debt, then it should be easy to his programs that did so. But aside from the stimulus, which most economists agree kept the nation out of a full blown recession, there are no such programs. Recall that the ACA is fully paid for, according to the CBO. Moreover, Obama allowed taxes on the wealthy to go up despite Republican objections.

    Second, the total debt level is not the proper metric. Responsible debt increases are fiscally fine as long as the economy is growing, so a better number to look at is the debt to GDP ratio. And CBO says that number should be pretty steady over the next decade.

    Today we have president and a Congress insisting on massive tax cuts. Hardly a model of fiscal responsibility, we should agree.