Many economists are talking about an impending debt crisis. They also feel it is hard to get our attention since the US has been in debt for years. But what is on the horizon is unprecedented.
If you look at total public and private debt, it is 370 percent of GDP. Economic research concludes that when this debt load exceeds 300 percent, problems begin to develop in the economy. We may not have a crash (though many are predicting that) but we will certainly see a reduction in economic growth and less investment in infrastructure and the society.
Most of us are aware of the fact that government debt is nearly $31 trillion. But the more important figure is government debt to GDP, which is 121 percent. That is the highest it has ever been in US history.
Politicians are facing a choice about our economic future. The US currently collects about $4.6 trillion in tax revenues. If you total up the largest budget items payments (entitlements, military spending, and interest), most of them are mandatory payments and exceed $3.8 trillion.
To make matters worse, most of those items will increase. Entitlements are increasing because more Americans are retiring. Interest payments are increasing because interest rates are increasing and because the government spends more than it takes in through taxes and other forms of revenue. The debt spiral is increasing organically.
At this point, there are few options. Austerity is an option that will never be considered. The few political leaders in the past who called for a balanced budget aren’t in government now. That’s how we as voters reward people calling for fiscal responsibility.
The only way left to deal with the debt spiral is print more money. The Fed may not want to do this, but I don’t see any other option left. This is what happens when expenses always exceed revenue.