Our economy is strong, but is the national debt likely to bring it down? Our current strong economic growth masks a dangerous hazard; one which can lead to America’s downfall. Left unchecked, debt threatens the prosperity of future generations. According to recent polling by Peter G. Peterson Foundation most Americans agree: “Future generations will be better off if the national debt is managed. 94% of Republicans and 92% of Democrats” are part of the consensus. This should be a bipartisan issue.
Good debt… Bad debt…
Deficit spending promotes consumption and stimulates the economy. However, private investment in the future is crowded out when government debt is too great. Investment that would go towards private sector economic growth, such as buildings, equipment, tools, software, and education is deferred. Every bond issued by government comes to mean a business cannot open, a building cannot be built, and workers won’t be trained.
Much of our deficit spending feeds less productive parts of the economy. Government spends what could be investment dollars on current period expenses, such as healthcare, retirement, public housing, and college funding. These are expenses. They are not investments.
Effects of debt…
Debt exerts pressure on the U.S. government. Spending on debt service will exceed Medicaid within a year. Within less than five years, it will overtake defense spending. This creates a potential threat to national security. Debt service is projected to be the single-largest federal expenditure within our lifetime. High debt causes an erosion of the nation’s economic stability. It also limits the government’s ability to respond in times of crises.
Monetary institutions feel the pressure from our excessive debt. Fiscal irresponsibility encourages loose and corrupt policy from the Federal Reserve. We know that what were considered “crisis policies” before the Great Recession have been made permanent. Things such as choosing not to sell off the glut of assets it purchased during the recession. This means our options for the next monetary crisis are limited before we even get there.
Danger Will Robinson…
The danger is: not understanding the risk and hence; failing to adjust our actions accordingly. What does the too late moment look like? A spike in interest rates or a shock to the bond market could cause the next Great Recession. The increase in the cost of debt accelerates rapidly. The amount of money the government will be required to lay out for debt service will spike. Think of it as a national version of step increase on an adjustable rate mortgage.
Entitlement spending is pushing deficits to $1 trillion. That is 20 million people’s worth of effort added to the debt. That is a high and dangerous human cost. Politicians are not acknowledging it. Voters are not holding their politicians accountable. The country must be protected from the federal government’s proclivity for unfunded spending.
What do we do? And what if we don’t?
We currently have no meaningful budget process. Government simply lurches from shutdown to shutdown. We authorize more and more spending without paying for what we are consuming. Unless significant entitlement reforms are implemented before we hit the fiscal wall, the only options available to lawmakers will be drastically increasing taxes, cutting government services, or more likely both.
It is up to all of us to save the country’s future from our lack of fiscal discipline. If America cannot stop its debt from destroying its economy it will be condemned to the same fate as other debtor nations such as Greece, the USSR, Argentina or Venezuela to name just a few.