Posted on 07/23/2018 10:42:32 AM PDT by Kaslin
The global debt level is reaching shocking new heights. The Institute of International Finance recently estimated the current total world debt is roughly $247 trillion—a truly unprecedented figure.
But as frightening as the global debt has become because of the dangers it poses to the world’s economic stability, Americans should be far more terrified of what this problem might mean for them, especially if the globe endures another major financial collapse before the United States can get its fiscal house back in order. Put simply, America is on the verge of experiencing an absolutely catastrophic period of economic change, and it’s due mostly to its skyrocketing debt, which is the result of decades of reckless government spending—by both political parties.
Although understanding how international financial markets work can be tricky, there are two basic reasons Americans should be deeply concerned. The first is that U.S. debt payments will likely over the next decade consume an increasingly larger share of the federal budget. In fiscal year 2018, which ends September 30, 2018, America will pay about $310 billion to service its national debt. The Balance reports these payments are the fourth largest budget expenditure in the current federal budget. Excluding Social Security payments, only “military spending ($874.4 billion), Medicare ($582 billion), and Medicaid ($400 billion)” are more costly.
Over the past decade, the size of these payments has not increased substantially, in large part because interest rates remained at historic lows as the world tried to pull itself out of the 2008 financial crisis. However, now the U.S. economy and many other leading economies are improving dramatically, interest rates will inevitably have to rise to ensure inflation doesn’t get out of control. AEI’s James Capretta estimates, “If the average real interest rate … gradually rose to around 2.2 percent over the next decade, then federal interest payments could reach $1.2 trillion in 2027 — or more than $0.3 trillion above CBO’s current forecast.”
This massive figure would consume so much of the federal budget that the government would be forced to raise taxes just to continue paying for existing government spending, stifling economic growth. This would be particularly problematic should the United States enter another deep recession, because during recessions, tax revenues often fall because of lower economic production.
Even more troubling, however, is the effect these debt problems could have on our currency. On its current trajectory, the United States will by 2027 likely be paying $500 billion to $1.2 trillion every year to cover federal debt interest payments. If the economy were to crash, the only way for America to continue making those payments without raising taxes or cutting spending, both of which would be very difficult to do in a deep recession, would be to seek additional loans from foreign governments or to print money. The former would only work, if at all, temporarily, and would eventually exacerbate the problem as interest payments grow ever higher. The latter is the most likely scenario, but printing money would create inflation, devaluing existing cash. The reason this would be so dangerous if the United States already has massive amounts of debt is that it could significantly undermine the world’s faith in the U.S. dollar, which is used every single day for international business transactions.
There is no global currency, so when two countries or, more commonly, two parties from different countries buy and sell, they often do so using dollars. There are some exceptions, of course. In the European Union, for instance, people buy and sell using euros, but for most of the world’s business transactions, dollars remain the currency of choice. The same is true for many of nations’ centralized banks. The reason this has occurred is that, following World War II, America has been the world’s most reliable and stable economy, making the dollar in the minds of many the safest currency among the more than 180 currencies available in the global marketplace.
That perception has slowly been changing, however. Over the past decade, top officials in countries like China have openly questioned the stability of the dollar and even wondered why some other country’s currency couldn’t replace it as the global standard. Some folks at the United Nations would love nothing more than to replace the U.S. dollar with a U.N.-sanctioned global currency, and some Europeans would surely push the euro as a better alternative.
If the dollar were to be replaced as the world’s currency of choice, it would cause economic turmoil in the United States. Not only would our markets and stock exchanges collapse as investors’ pessimism about America soars, hundreds of billions of dollars in cash would likely come rushing back to the United States, where foreign investors would buy up whatever stable assets they could, most likely real estate. More dollars in our markets would cause additional inflation, making our money even less valuable. This would likely force the Federal Reserve to raise interest rates to keep inflation in check, thereby making it even harder for businesses to get loans (because they would be more expensive with higher interest rates), causing the economy to continue spiraling downward.
Eventually, the United States’ economy would recover, although it might never regain its status as the world’s most important economy. But in the meantime, Americans would likely endure a Great Depression-sized recession.
All of these problems are avoidable. If America were to steadily reduce its debt, the world would likely stick with the U.S. dollar for the foreseeable future; if it ain’t broke, don’t “fix” it, as they say. The only way for this to occur, however, is for politicians in Washington, DC to get their act together and move away from our currently unsustainable policies. That doesn’t appear to be happening on either side of the aisle, and the results could eventually be far-reaching and monumental.
Make a list of the countries which have better fiscal management than the United States right now. The list is quite short. Places like Switzerland, Singapore and maybe a few surprises like the Czech Republic.
Now make a list of the countries with worse fiscal management. That list is quite large and even includes massive economies like China-- home of new shopping malls which are nearly empty, unsustainable military spending and billions in U.S. Treasury notes not because they love us, but because they can't find a safer return.
Understand how fractional reserve banking operates. Deposit $1000 and get a $10 annual return at 1%. That $1000 enables the bank to loan $5000 which they will probably not loan out at less than 5% or a $250 annual return. Call it $242 after a 3% allowance for default. They are basically making 24:1 less the usual costs for salaries and offices. And bankers are mostly pikers compared to places like the fed, insurance companies and the like.
Good point.
While no economist, banker, billionaire developer, I’m thinking all of this can be laid on the lap of just a few...
Wall St, in all its greedy, business destroying corruption https://en.wikipedia.org/wiki/Generation_Zero
Politicians buying votes and letting corporations turn them into puppets, while selling out the American people...
Funny how there hasn’t been much, if ANY, coverage of this. Surprised the guy and his grad assistants are still alive.
The billions and billions and billions that go to illegals, their BS birthright citizen spawn and refugees. All so the Dems can ensure their voting base in the next few years.
You will also need a group of like-minded people for when the hordes show up. Nobody is going to be able to go it alone. Think of small towns far removed from big cities.
Huh? I’ve been sitting here trying to figure that out. Makes my brain hurt.
Hint. Think of a hit song by REM (1980’s)
(And I feel fine)
Or not:
Feds Collect Record Individual Income Taxes Through June; Still Run $607B Deficit
Well yes, we do care. And yes, someone is doing something.
Apparently not. Certainly not in Congress.
In about 9 years!
Bingo!! The most important problem facing our nation is ILLEGALISM. It adds billions to the deficit/debt every year.
Lately, land has served as real currency. All those sky-high prices for real estate property reflects the devaluing of the dollar, which has lost much of its value since 2001. Put your money in real estate, and it gains value faster than gold.
As for interest rates, I've noticed the quickening rise of interest rates. Currently getting over 2-1/2 percent on my money, better than the measly under 1 percent not long ago. Helps me, but bad for federal debt. Debt-free and own property, that's the way for survival in the days ahead (and armed).
Tough to buy a cold beer with land, but I agree with you.
Debt-free and property owner as well.
I used to worry about this a lot.
It's now apparent that the debt issuers are going to get screwed, so I worry about it less.
YAWNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNN
Or, Trump's new tariffs will pay off the debt.
There needs to be a Balanced Budget Amendment.
DoodleDawg, did you expect the deficit spending to stop the very day Trump was sworn in? I didn’t.
I knew it would take time. I expected it to take 2-4 years after the tax cuts were signed into law.
I do believe Trump has put the initial pieces in place, and I expect receipts to increase plenty more over the next few years.
I didn't expect a balanced budget day one. But I had hoped that the deficit would begin to go down and not go up to the trillion dollar range.
I do believe Trump has put the initial pieces in place, and I expect receipts to increase plenty more over the next few years.
What good are increased revenues if expenses grow at an even faster rate? And what if revenues don't continue to increase but spending does? After all, we're going to have a business downturn sooner or later. What then?
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