I periodically warn how dire the US debt situation is. For something without significant news coverage, it is incredibly dire. Look at the simple math:
1. The US govt is spending $6.8T ($6800 Billion) a year.
2. But its revenues from taxes are only $3.8T. That is a mega-shortfall!
3. So we continue increasing the debt, to fund the difference.
That accumulated debt is now larger than our GDP (and the World Bank says that's past a tipping point for disaster). US govt is spending about $600B on interest each year, which is about 8% of its budget, and rising. If interest rates rise, interest payments will go much higher, and will crowd out other spending on stuff most of us want the government to provide, such as Social Security, Medicare, food assistance, police, courts, roads. Imagine a US with only half as much spent on those programs.
It is wrong to assume we can just "grow out of it," as the debt is growing faster than economic productivity gains.
The fix is to raise taxes and cut spending, but politicians are punished for doing that. It's unlikely the US would just default, but that's possible, and would bring its own nightmares. The only other thing the govt can do, it is doing: print so much new money that inflation accelerates. Inflation makes the debt smaller (as it can then be repaid in dollars that are worth less), but inflation also decreases the value of your money and assets and income, and lowers your standard of living. This is the great failure of America: We learned how to increase our standard of living, in the past, by ruining the lives of Americans in the future. Neither political party is doing anything to address this problem.
In its modern form, it was Reagan who first learned he could buy popularity by cutting taxes and driving up the debt. Luckily for those who came after him, every single President except Clinton has utilized deficit spending to advance his agenda. It can't continue forever, but until the bubble bursts it is an easy way to solve today's problems. But it is the worst possible way!
There is no good way out of this for the US, and the future is bleak unless we create some way to require a balanced budget. I personally think that voting for, or signing, a deficit budget, in peacetime, should be a felony akin to treason, as it's difficult to imagine anything more injurious to our nation. But that won't happen, as it requires current sacrifice. So, sorry to say, the future really is bleak.
If you are concerned about this, you can demand debt reduction by your politicians, and you can try to protect yourself by finding new ways to lower your living costs, and if you have some investments, consider moving some of them to currencies that might prove stronger than the US dollar. The future of the dollar, on our present course, is beyond bleak.
(photo credit: Dreamstime)
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