It has been described as a tidal wave, an asteroid, and a cancer; and the worst part is, nothing has been done about it. If we’re going to survive, we have to act now.
Both the government and citizens of the United States have become addicted to debt. In 2008, this addiction led to the biggest government bailout in U.S. history, a $700 billion dollar bailout accompanied by another $100 billion in tax cuts and spending increases. For the first time in history, the national debt is estimated at $10 trillion by the White House within the next 10 years. To put that into perspective, the national debt per person is growing at a drastic rate. White House Budget Director Peter Orszag stated in August 2009: "The Administration is very concerned about these deficits and getting those deficits under control is a top priority of the administration."
Ever since the United States was founded, our country has had to deal with debt. The Revolution, the Civil War, the Great Depression, WWI, and WWII all resulted in spikes in the national debt. After each of these incidents during times of relative peace, the country has rebounded and significantly lowered this debt. However, in the 1980s, this all changed.
During the Reagan Era in the 1980s, national debt skyrocketed. Tax cuts and increased government spending lead to the national debt increasing from 33% to 64% of gross domestic product. This was the first time of relative peace that debt was accumulating.
Currently, the national debt is on track to exceed $10 trillion by 2019. The most terrifying part about this is that the debt now is nothing compared to what it will be in a few decades as the unfunded entitlement programs are estimated to exceed $56 trillion if nothing is done. Right now, members of baby boomer generation are still in the work force. As they get older, however, more and more of them will retire and begin to rely heavily on the government for support through programs such as Social Security, Medicare, and Medicaid. In 2008, these three programs accounted for around 40% of the national debt. If this continues, by 2040 the spending on these programs will have skyrocketed, increasing national debt to 244% of GDP. These promises the government made add up to a whopping $56 trillion and at the rate the national debt is accumulating, taxes would need to be raised significantly just to pay for the interest on this debt.
It is easy to blame this whole situation on the government but the thing is, the citizens of the United States are to blame as well. Americans had become a culture of extravagant spending and the costs of this caught up. Until recently, the average U.S. household spent more than it earned. The credit crisis and spike in unemployment has made many households focus more recently on the need to save.
The huge debt that has built up from the combination of ineffective fiscal and monetary policy, excess spending and the looming growth in the entitlement programs are unsustainable. This must come to an end. “As the baby boomers retire in larger and larger numbers, this tidal wave of spending will reach our shares and we are simply not prepared for it. And trust me, it could swamp our ship of state.” Movie: I.O.U.S.A.
So, what does this mean for you?
America’s citizens must become financially literate to be able to prepare for a future that may not include the same benefits from Social Security, Medicare and Medicaid.
The accumulating US debt is placing the country in a difficult position, to put it lightly. National debt forces the country to borrow money from other countries in order to pay off these deficits. In the past, China has been the largest US-debt taker. However, with the rapidly increasing rate of debt accumulation, China’s control over the US economy is growing. To protect economic and national security, the status quo must come to an end.