Government debt. It’s not a Republican problem and it’s not a Democratic problem. It’s an American problem. And there’s plenty of blame to go around. According to USDebtClock.org, America’s current U.S. debt is approximately $12 trillion. That’s the equivalent of over $39,000 per citizen (every man, woman, and child) and nearly $111,000 per taxpayer.
With the recent government stimulus programs and bailouts, however, the country’s debt load is expected to increase by more than $9 trillion over the next decade according to a recent article by Jeanne Sahadi, senior writer for cnnmoney.com. More than half of the $9 trillion increase in debt that the U.S. government is projected to take on over the next decade will be interest owed on the debt. $4.8 trillion, to be exact.
I had trouble getting my head around what our country’s current debt of $12 trillion really looks like, so I decided to investigate. When you write down the number, $12 trillion is the simply 12 followed by 12 zeroes:
$12,000,000,000,000
That looks innocent enough. I mean, after all, it’s not real money. It’s just government figures and estimates, etc., right? Unfortunately, no.
Let’s try to put just $1 trillion into perspective. Here is what I found on the Mint.com blog:
Just $1 trillion equals…
$1 Trillion Rent and Mortgage Equivalent
And just $1 trillion equals…
$1 Trillion Australian Goods and Services Equivalent
And just $1 trillion equals…
Comparing $1 Trillion to the Cost of the Current Government Bailout
And probably the most disturbing example of all…
The $1 Trillion Federal Government
So how did we get into such a debt mess? Since this is a financial post, I will mercifully steer clear of any political opinions and ramblings, but it is important to remember that the money being spent belongs to the citizens of America. As mentioned previously, there is plenty of blame to go around on both sides of the aisle in Congress. But how does the richest country in the world become such a huge debtor nation?
It’s quite simple, actually. You can think of it in terms of your own budget. If you are employed or if you own your own business, you likely have a stream of income in the form of a paycheck from your company or revenue from your business. Unfortunately, your income is limited. Sure, you may make more money this year than you did last year, but your income is not – and never will be – unlimited. The same holds true for the U.S. government. The government’s income flows from taxes on personal income, taxes on business income, etc. and this income is finite or limited. So, you and the government have to figure out how to spend money throughout the year in accordance with your income.
Whenever you spend more money than you bring in throughout the year, you are likely forced to use debt to cover your excess spending. Likewise, when the government (Congress, specifically) spends more money than it brings in each year, it is forced to use debt to cover its expenses. If you choose to spend more money than you bring in over a long period of time without additional sources of income or savings to offset the expenses, you will go deeper and deeper into debt and may even be forced to declare bankruptcy. It’s the same with our government. When Congress chooses to spend more money than it brings in on expenses like national defense, entitlements, and other federal programs, the only option is to go into debt to cover the excess spending. This creates what is known as a budget deficit. And this type of reckless and irresponsible deficit spending has been going on for years and America’s debt load is now approaching astronomical levels.
When you are faced with a budget deficit, you have a number of opportunities to remedy the situation. You may choose to spend less going forward and use the savings to pay off your debt. You may choose to go to school or learn a new skill or trade that allows you to land a new job or make more money in your current position. You may start a new business or land even take on more than one job to increase your income. The choices are endless.
The government, on the other hand, has fewer alternatives. To deal with budget deficits and their associated debt problems, the government cannot take a second job or learn a new skill to increase its income. To deal with its debt problem, the government must choose one of two options:
- Reduce or even eliminate its spending commitments so that the amount of money that the government spends is less than the amount of money it brings in, or
- Increase its revenues. This, of course, means raising taxes on companies or on your personal income or both.
China is a major player when it comes to funding America’s debt problem. To better understand this relationship, check out this related post.
