re: The 40 trillion Federal deficit. Why we have it in part.

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I believe the biggest part of it is because the annual trade deficit we’ve had since 1976.

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Yes and no.

You first have to understand that the two World Wars were devastating to manufacturing in Europe, with WW2 being even more so there, but expanding well into Asia. This left the US as pretty much the lone major industrial country due to our cities having not been bombed to shite and back. That created massive export surpluses for decades, but it was always going to shrink once the rest of the world got their manufacturing back up and running.

By the time the 1970s hit, not only had much of the prior manufacturing centers rebuilt their infrastructure (excluding for politics, places like East Germany), but the advance of technology allowed even more countries to become manufacturing hubs.

That said, we've now set the stage for the oil problems in the 1970s. While most know something of the oil problems in the mid-late 70s, it really began with the 1973 oil crisis when OPEC placed an oil embargo on the US and any other country which had supported Israel in the Yom Kippur War. Not only did they embargo, but they also slashed production, which spiked oil prices globally.

This put a lot of our main export destinations into a recession, which meant we had a surplus of goods we couldn't get rid of. That (and some other factors) ended up snowballing us into a recession of our own (I can still remember hearing the term "stagflation" on the news every night). That recession was pretty bad, a lot of businesses closed as interest rates in the early 80s had to be driven sky-high to bring down inflation.

Trade deficits remained high, but were shrinking as we went into the 90s, and then NAFTA happened and we haven't had a chance since then.

But that's only part of the picture because while trade is important, it does not exist in a vacuum.

Another big driver for the deficit started with the CRA (Community Reinvestment Act) in the 1970s. This Carter-era law sought to push banks to lend more to minorities and in minority communities than they had previously. By "minorities" I don't just mean race, but gender as well. As an anecdote, my mother was far better about saving money than my father. She tried to get a loan in the 1970s but was denied unless my father co-signed. She had the money in the bank AND had more money in her account than he had in his but the attitude of the time was that women could not be trusted without a male co-signer (that day she closed her account and took her money down the street to the other bank in town).

In other words, there was room for such legislation. Also, it had safeguards to keep banks from being forced into too many or too large sub-prime loans.

We now move forward to the 90s where the Clinton administration began pressuring banks to write more sub-prime loans (mainly to racial minorities) in exchange for allowing them to grow (not just from buying up other banks, but for little things like off-site ATMs). Towards the end of the Clinton administration, Fannie Mae and Freddie Mac began tying CEO bonuses to earnings-per-share and the quickest way to increase that was to go along with underwriting more sub-prime loans.

From there we have 9/11 where the Fed had to drop interest rates to 1% to keep the economy from collapsing. That combined with the sub-prime environment already outlined caused housing to catch on fire. Even though rates were moving back up, everyone and their brother was flipping houses between 9/11 and the GFC of 2008/2009. Even with GWB's wars, deficits were still manageable.

From an interest rate standpoint we still weren't quite recovered when the GFC hit and the market shite itself. The Fed cut rates to below 1% and the federal government started throwing out massive amounts of cash to keep businesses afloat. For the first time in the history of the country, deficits rose to over $1T. While deficits would eventually drop below $1T, since 2008's deficit of $248B, we have been below that only one year (2015 with $442B). Since 2020, we haven't been below $1.3T in deficit spending and aren't even projected to go below $1.5T for, well... ever. By 2036 we're expected to cross over to $3T in annual deficit spending.

There is no doubt trade is an issue, but the deficit spending problem far surpasses the trade imbalance. While a lot of that spending comes from waste, fraud and abuse, the brunt of it comes from people being (re)elected to federal office who understand they won't get another term by running on a platform of "I'm going to make sure you get less!" Along with that, almost one quarter of GDP comes from government spending and those deficits are keeping us at roughly 2% annual growth, so cutting back on deficit spending means creating a recession. No one gets re-elected by creating a recession so you can use a little imagination and some basic math to understand where this eventually leads.

And that's not even getting into the inflationary aspect of creating all those trillions of deficit dollars.