Government Employees: Another Look at Government Debt

In today’s post I want to compare the growth rate in the number of Government employees to the growth rate in the number of Private employees. To that end, I extracted data from the St. Louis Fed FRED system and then indexed that data to visualize the evolution of their growth rates.

You can go here for the graph, or simply look further below. A few observations stand out:

·         From 1960 to 2014 the growth rate of Government employees exceeded the growth rate of employees in the Private market. You can see that by simply observing the “red” line being above the “blue” line.

·         The growth rate of Government employees seems to have peaked around 2008, and has been essentially flat since that time. But in 2015 until the March 2020 lockdowns, the trajectory of the growth turned upward – albeit very slowly.

·         From 2010 until the March 2020 lockdowns, the growth rate of Private employees began to grow at a faster pace than Government employees.

It is worthwhile to note that the underlying dynamics for each dataset are not the same, so we must be careful not to go beyond the obvious. Government employee data is fairly homogeneous, whereas Private employee data is heterogeneous. In other words, the Government data is an agglomeration of one entity (government); whereas, Private data is an agglomeration of multiple entities (many companies). This means that the risk factors that drive one dataset are different than the other.

What does all this tell us?

·         The growth in Private enterprise has kept pace with the Government.

·         The growth in Government represents the “cost of doing business” because the government does not produce anything of value on its own, but rather redistributes wealth.

·         Government is well-entrenched in the economy, which at the moment makes up about 18% of real GDP (as of 4Q2020).

·         It is no coincidence that as Government employees have grown, so has the Federal Debt. This does not bode well as indicator of whether the debt will be paid down. Federal debt will continue to grow.

Government / Private Employee Growth 

Federal Debt Held by Private Market

Expanding from a previous post, it is concerning to observe the increase of public debt monetization by the Federal Reserve. Put differently, the private market holding of the public debt, based on rough estimate, has been on a general decline. As noted from the Table below, the estimated share of debt held by the public as of 2/18/2021 is about 53%, some 8% decline since September 2020. Now, the precision of these amounts are less of a concern, given that by the time this post is published or read, the amounts will have changed. What matters is the trend. And here we are seeing that the additional debt being issued is being gobbled up by the Central Bank at a faster rate when compared to the private market. At the logical extreme, the FRB will at some point be the only buyer in the market. But before that actually happens, expect yields to increase to account for the increase in counterparty risk.

[In billion of dollars] 

*Total Privately Held has been adjusted to reflect FRB holdings, as reported by the FRBNY. February 2021 amounts obtained from US Treasury. Other amounts in Table come from US Treasury report, Table OFS2.

Total Federal Debt: The Road to Perdition

Particular numbers or data do not matter in and of themselves. They must be taken in context with respect to the broader trend. One of these data relate to the Total Federal Public Debt, as published in FiscalData.Treasury.gov.

I looked at the Federal Debt at various points in time considering the last 4 US Presidents’ start and end date of their Administration: Bill Clinton (Jan 1993 – Jan 2001), George Bush (Jan 2001 – Jan 2009), Barak Obama (Jan 2009 – Jan 2017), and Donald Trump (Jan 2017 – Jan 2021). What becomes fairly obvious when looking at the data is that Total Federal Debt been on a deteriorating trend. Each President has fared worse than his predecessor, which is to say that all of them added to the Federal Debt and each one outdid the previous when we look deeper into the numbers.

As can be seen in the data analysis below, Bill Clinton added approximately $1.48 trillion to the federal debt. George Bush outdid Bill in adding about $4.9 trillion. Barack Obama added $9.3 trillion. And last but certainly not least, Donald Trump added $7.8 trillion. Now bear in mind that Donald Trump was President for only for 1 Term, so we have to take into account that fact when comparing these amounts versus the other Presidents who presided for 2 Terms. When we take the total additions to the Federal debt and then divide it by the number of days each President was in Office, we can then see the daily average of total debt that was added. And by this last metric, Donald Trump has been by far the worse. The daily average of total federal debt for Clinton was about $506 million; Bush was about $1.7 billion; Obama was about $3.1 billion; and Trump was about $5.3 billion. 

The amounts are staggering. One can only reasonably conclude that the Biden Administration will likely dethrone Trump in breaking the daily debt accumulation record. My expectation is that the new Administration will likely add to the federal debt about $7 to $9 billion on average daily, which means that the total federal debt by the time the next President is inaugurated will be about $38 trillion to $40 trillion. 

The trend is ominous. The trend is catastrophic. Prepare accordingly. 

Data Analysis: