In all the debates lately one item not receiving a lot of attention is the national debt. Obama seems to not pay it much attention at all; even his most ambitious plans to deal with it are only meant to slow its rate of growth. Much like a man in bankruptcy court begging the judge for another chance by promising to only double his present debt over the next six years instead of the five like he was planning; Obama simply shows he does not comprehend how bad the situation is. Romney on the other hand is continually calling the debt immoral, which it is, but the direness of the situation goes far beyond a question of morality. The national debt is now entering phase where the very survival of the nation is at risk.
Thomas Jefferson wrote that “There does not exist an engine so corruptive of the government and so demoralizing of the nation as a public debt. It will bring on us more ruin at home than all the enemies from abroad.” As the U.S. debt spirals well past sixteen trillion Jefferson’s words seem timely if not prophetic for the present age. The fact is a large national debt does so much more than people realize.
The debt is a counter balance to trade and economic growth. As any economists will tell you, the money flowing between nations always ends up balancing. It can be balanced in kind via trade in goods and services, through international investing or, as in the case with China, it can be balanced by borrowing. As the Chinese decide what to do with the dollars America sends their way it is usually a competition between buying American products or buying American debt, often it is the debt that wins out. The truth is the U.S. government is as much to blame for the Chinese trade deficit as the Chinese are. Of course trade deficits and lost economic opportunities are just part of the turmoil cause by a huge debt.
Today as the American taxpayer struggles to support the demands of government expenditures and keep up with out of control entitlement spending they are faced with the additional burden of servicing the interest on the debt. The interest on the national debt consumed 6.4% of the budget in 2011 and that was under extremely favorable interest rates. As the deficits and interest rates continue to go up the percentage of the government’s budget dedicated to servicing the national debt is likely to soar. How much? This is a open question but if history is the guide the U.S. could see the cost to service the debt exceed a trillion dollars or about a third of the current U.S. budget in the near future.
So alarming is this trend that many countries are wondering aloud if the United States is a good credit risk and if the dollar should be the currency of international trade. Worries that are not without foundation, in fact they seem to be born out by the recent downgrades in the U.S. credit rating. Downgradings that should of shook the American public to its core. Amazingly, but for the Tea Party folks it seems to have been mostly just shrugged off. A side effect it seems of an American Press that in its frenzy to protect President Obama downplayed the significance of these events. Events that, like foreshocks before a big quake, are mere warnings of a greater cataclysm to come.
All of this, predictably, is giving great comfort to the country’s enemies. Many of them even now are gloating that the debt is a fatal blow from which there will be no recovery. Others are taking comfort in America’s declining defenses and see a world where American might will soon not be a factor. Alarmingly it is not just the enemies of the U.S. that see the debt in such apocalyptic terms. Many of the United States allies have been pointing to Greece as harbinger of what is in store for the U.S. if things are not gotten control of soon.
Of course, unlike Greece, there is no EU or IMF to bail out an insolvent America, if she goes everyone goes down with her. No amount of printing or chicanery by the Federal Reserve will be able to save the Land of the Free if the day of reckoning arrives. Once more there is no real way to predict the exact amount of debt will trigger a move towards collapse. What is certain is that sooner or later downgrades will cause interest rates to skyrocket and/or China will just say no to buying more American debt. When that happens total financial collapse will be followed swiftly by an economic one, beyond which the world has never seen. It is also certain that such a day of reckoning will come sooner than later if nothing is done.
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