The United States Debt Gone Wild
The United States Debt Gone Wild
The United States debt... In the style of a seeming "financial manifest destiny", America, led by the Federal Reserve and the government has crusaded to an unprecedented level of growth in the past 30 yearsBut at what cost?Unfortunately, Americans possess the trait of "we want it, and we want it now". This has had deadly implications for the American economy.
Americans have been drastically increasing their financial leverage over the past 30 years to finance growth and operations beyond our natural means. All the while, in the background, China, Japan, Europe and others see their cash registers starting to "cha-ching" with IOU's from the U.S government. And this is okay, right? I mean, isn't that what financial leverage is forto fund real growth and make people better off by increasing GDP and per capita purchasing power?
Unfortunately, this freedom to borrow has led tomoral hazard. America stopped borrowing to invest in real capital assets or infrastructure. We started to speculate. We formed financial innovations with fancy names like collateralized debt obligations and mortgage backed securities; anything to try to make a buck. The flow of borrowed money began to be used for things that had small, if any return-on-investment such as wars andpork-barrel spending by politicians to gain another term.
Of course, just like with any loan, we began to accrue interest that had to be paid back to our creditors. This amount has grown over the past thirty year, increasing drastically with the more recent Iraq and Afghanistan wars, QE spending, increased transfer payment payouts to the retiringbaby-boomer population, conflicts in Libya, natural disasters, etcetera, etcetera.
Since 2008, we have doubled our total national debt. Take a second to think about that. In 3 short years we have spent as much as we have in the past 30 years. If that doesn't scare you, it should. Our total debt today (according to the Treasury), is $14,210,071,848,853.10. Seem like a lot? It is. And what's really scary? This is about 1/5th of the actual amount of debt we owe when you consider transfer payments owed, such as social security,Medicare, Medicaid etc.
This number is a problem because of the interest we must pay on it. Now, to the inexperienced wanderer who ventures a look at the nominal interest payment numbers may see that interest payments on debt are actually declining! What gives? Well, what they don't tell you on CNN is that the Fed, over the past 10 years, has actually kept real interest ratesNEGATIVE more than 60% of the time!
This means the government is actually making money on the debt we owe because we are paying it off in less valuable dollars Suffice it to say, our real debt levels arespiraling out of control, and the Fed is toying with monetary policy to attempt to prevent itself (and YOU!) from going broke on the spot by changing interest rates so that we aren't truly paying down our debt.
(This is a guest post by a friendSteve Furst, a smart guy who specializes in economics. He is a graduate of Central Washington University.)
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