The U.S. National Debt is now $20 trillion, having doubled in the past ten years, and is projected to exceed $30 trillion by 2028. That is a 50% increase in the next ten years!
Huge increases in the Debt were incurred in the George W. Bush years to finance the war in Iraq and fund the new prescription drug program. These increases continued in the Obama years to provide stimulus to the economy to combat the severe financial meltdown in 2008. Significant expansion of the Debt is continuing in the Trump era with the passage of tax legislation and a government spending package that many experts expect will add $1 trillion annually to the Debt for the next ten years.
Some experts are not alarmed, while others feel sure there will be a big price to pay down the road. To these latter experts, it’s only a matter of time.
The more optimistic voices are not worried by the Debt-to-GDP ratio, which is about 100% and on a path to exceed that. The U.S. dollar is the world’s reserve currency. As such, we can take on more debt than other countries. American debt by comparison is very safe. And as a result, there is still a lot of demand for our debt.
The U.S. is churning out $20 trillion in goods and services annually, meaning that the country could pay off all of its debts in just 12 months of economic production. At this time, nearly 20% of the country’s GDP is revenue to the government, or approximately $4 trillion per year from taxes, investments and other sources of income. So theoretically, the government could pay off its debts in less than six years if it focused all of its income on debt repayment. Putting things in perspective, these experts are not at all concerned with our large and growing National Debt.
The more pessimistic voices feel the U.S. will steadily lose options in dealing with potential problems caused by the country’s heavy debt load. It would put more pressure on the federal government to rein in entitlement programs and limit its ability to undertake activities that Americans think are important.
In the short run, the economy and voters may benefit from deficit spending. It drives economic growth. However, over the long term, a growing federal debt creates problems. As the Debt-to-GDP ratio increases, debt holders could demand larger interest payments. They would want compensation for an increasing risk of not being repaid. If this resulted in diminished demand for U.S. Treasurys, it would further increase interest rates. That, in turn, would slow the economy. Lower demand for Treasurys also would put downward pressure on the dollar. As the dollar declined, foreign holders would get paid back in a currency that is worth less, further decreasing demand.
For some different perspectives on the subject, click on these links:
For this last Brown Bag Lunch until September, come add your “2 cents” to this multi-trillion dollar issue.
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