The Other D Word

This year we've heard a lot about the "D" word--that the US may have to endure Depression II.

Well, there is another D word we should heed. It's a very big number--and the ultimate consequences could haunt our children and grand-children decades from now.


The United States debt now stands over $11 trillion. That's a number far too big for anyone to comprehend.

If every US citizen were sent a bill to fully pay off the existing debt, you would owe about $37,000! That's a number one can understand.


There is a web site where you can view the US national debt as it constantly grows. This is presented as a debt clock.

Often it is helpful to put economic data into context. Debt is often expressed as a percentage of Gross Domestic Product (GDP). Do you recall that GDP is the aggregate of all goods & services produced?

The US debt peaked in the 1940s as we borrowed to finance WWII. Fortunately, with growth & productivity following that great war, we were able to bring the debt as a percentage of GDP down to a manageable level.


Today, however, we are witnessing a very aggressive pattern of spending in Washington--far beyond what is needed to battle the current recession. That poses a grave danger to the US. Economists are now beginning to question whether we are heading into a New Normal--a future where we may experience structural changes in our society through:

• Lower annual growth, ie, lower GDP
• Higher unemployment
• Uncomfortable level of inflation
  

The danger goes well beyond our economic well-being. It is also a matter of national security. About 30% of the US debt is now held in foreign countries. That debt is held in the form of US Treasury securities.


Who knows which country might wage economic war against the US? It would be easy to do. Such action could severely hamper GDP growth, cause unemployment to spike and increase our inflationary pressures.

Right now we spend about 9% of the federal budget to pay interest on this debt.


The Congressional Budget Office (CBO) reports that the federal government is facing a serious long-term financing challenge. This is because expenditures related to entitlement programs such as Social Security, Medicare, and Medicaid are growing considerably faster than the economy overall, as the population grows older.

The CBO has indicated that under current law, sometime between 2030 and 2040, mandatory spending (primarily Social Security, Medicare, Medicaid, and interest on the national debt) will exceed tax revenue.

In other words, all discretionary spending (e.g., defense, homeland security, law enforcement, education, etc.) will require borrowing and related deficit spending. Language such as unsustainable and trainwreck has been used to describe such a future.

Here we see a Government Accountability Office (GAO) projection of the risks of unbridled entitlement spending


2030 is not that far off!! Do you recall what you were doing in the early 1980s? Well, that's longer ago than the upcoming 2030 date!!