The United States has been living outside its means for quite some time now. I think most people are probably aware of this to some extent, but I’m not sure everyone understand the consequences. The numbers are astounding; our national debt is approaching $12 trillion which comes out to roughly $39,000 per citizen. The increase to our debt for this year alone is estimated to be $1.8 trillion. To put our debt into perspective, the gross domestic product (one way to try to calculate the final value of all goods and services from a nation) for 2008 was $14.4 trillion.
What are we spending so much money on? Let’s look at some of the largest budget items for the calendar year to date: Medicare and Medicaid top the list at $609 billion, followed by Social Security and the military at $550 billion and $516 billion, respectively. I don’t know about you, but I find this figure particularly hard to wrap my head around. The interest on our debt is $311 billion for this year so far. There are so many numbers, and if you’re looking for more I’d encourage you to visit www.usdebtclock.org, but for now I think I’ll give the numbers a rest.
The most apparent consequence of our debt is the interest we have to pay on it, just like the interest an individual would have to pay on a loan.
We’re beyond that though. I’m referring to what’s called the “monetization of debt” to put it nicely, or the inflation of our currency to put it more bluntly. Monetizing debt is when the U.S. issues bonds for people or governments to buy to support our debt and when the Federal Reserve buys those bonds. In other words, the U.S. government asks people to loan it money and instead of accepting money from outside sources, it hands itself that money. This is possible through inflation, which is increasing the money supply, which is accomplished by printing the money. The consequences for this are widespread and potentially disastrous. Inflation devalues the dollar; just last week the dollar hit a new low when compared to foreign currencies for the year. Inflation is also somewhat of a hidden tax as it redistributes wealth from the private sector and shifts it towards the government, without actually taking money directly from anyone. This allows reckless spending at the federal level because rather than collecting money for taxpayers to pay for services, the government instead devalues all of their current dollars so that it can fund its programs without direct taxation.
I own a $100 trillion dollar bill — seriously — that’s from Zimbabwe. I bought it for less than $10. How did the $100 trillion dollar Zimbabwe notes become worth less than $10 in the U.S.? It’s called hyper-inflation. Imagine the U.S. dollar having its value plummet to a fraction of what it’s worth today. The Zimbabwe dollar has done just that over a period of only a few years. At the height of the hyper-inflation in Zimbabwe, which was November 2008, prices doubled every 24.7 hours.
Knowing all of this, it’s scary to see that we’re still headed in entirely the wrong direction. The debt is growing and not shrinking. There are entitlement programs galore and they’re only being expanded; this is the welfare state that I referenced last week. We can’t afford more than what we have now because we can’t even afford what we have now. I know we’re the United States and we’re a superpower, but the fact of the matter is that superpowers don’t last forever; they have their limits. The U.S. is like a kid on a spending spree with too many credit cards. It needs to stop and the sooner the better. We’re only digging our hole deeper with each passing day. I wish the United States the best, but that doesn’t mean I blindly believe in the nation to the point where I think it can do anything. The U.S. isn’t infallible and I think it would prove wise to not forget that. We are living beyond our means and it is not sustainable. I fear for our future as the path we are headed down now is not a pleasant one.