During the modern era, US national debt has inflated to unimaginable numbers. We currently owe $18 trillion, which translates to $107K per taxpayer . It’s important to understand the implication of debt, the various projections, and how it affects the country.
There are different projections that forecast national debt at varyingly high levels. Regardless of how you measure, however, something must be done about the debt now to prevent financial and economic instability in the future.
– Debt to GDP ratio has more than doubled since 2007
– Baseline projection: 139% debt-GDP by 2039
– Most projections show an exponential increase after 10 years
– Debt-GDP has never exceeded 50% from 1957 to 2007
– CBO: 180% debt-GDP by 2039 (3)
According to the Brookings Institute, even the most optimistic projections have the debt-to-GDP ratio at 81.3%. This, of course, assumes that there are no new wars, no new spending programs, and significant reductions in healthcare costs (2). In my opinion, those assumptions are generous at best, especially based on the current trend of governance in this country.
In order to cut dept-GDP ratio back to 36%, which is the average historic level, over the next 25 years, it would require immediate and permanent policy changes of 3% of GDP. If the implementation were delayed until 2020, the required changes would be 3.8%. Put simply, we are digging ourselves a deeper hole.
Debt is exploding because of deficit spending – not revenue shortages. When you continuously spend more than you earn, you run up debt. Political rhetoric boasting the “shrinking deficit” is meaningless.
The other issue is, of course, unfunded long term liabilities in mandatory spending. Social security and Medicare are the two biggest drivers. Actually, both Brookings and CBO project military spending to decrease and mandatory spending to increase, and both admit that is optimistic speculation. Even assuming these cuts reduce the deficit and no other spending increases, we would still be around 90% debt-GDP by 2039.
In a the CBO fiscal report, they assert that unsustainable nature of the federal tax and spend policies specified in current law have exacerbated debt, and that substantial policy changes to Social Security will be necessary.
The debt-GDP ratio is projected to rise over the decade, whereas in previous high-debt episodes it fell rapidly. Unfortunately, the 2016 presidential campaigns have ignored the issue entirely – most likely because public interest in fiscal balancing has fallen.
Increasingly high levels of debt threaten future economic growth by placing large financial burdens on the next generations. Politicians and bureaucrats spend this money, but do not retain any of the associated costs. The national debt needs to be a central issue to the 2016 elections or it will continue to spiral out of control.