Sunday, January 22, 2017

$20 Trillion Debt

The U.S. National Debt Is Now $20 Trillion

As incoming President Donald Trump is about to take office and outgoing President Barack Obama departs, a dubious milestone has been achieved: the U.S. national debt has hit $20 trillion.

While this number has greater psychological consequences than physical ones, it’s troubling because the road the country is headed down is not a good one. There may be no shortage of nations willing to loan the U.S. money at the moment, but in the future, this may not always be the case if the number continues to rise.

In fact, the road to financial ruin is paved with the carcasses of governments that failed to rein in their national debt and let their spending eclipse their income, resulting in default.
It’s true that nearly half the debt can be attributed to increases experienced under the administration of President Obama. Obama added nearly double the amount to the debt than his predecessor George W. Bush did and five times the amount that Presidents Bill Clinton, George H. W. Bush and Ronald Reagan each added.

Foreign wars, payments for bank bailouts from the financial crisis of 2008 and benefit spending from high unemployment all helped balloon the number from $10.6 trillion when Obama took office to over $20 trillion today.

Indeed, the issue of the debt growing larger than the country’s ability to pay it has been an issue since the late 1970s, when the debt-to-gross domestic product (GDP) ratio was 31.8 percent and the total debt was under $1 trillion.

Today, the debt-to-GDP ratio is a worrisome 104.2 percent, which has only been surpassed once in the last century — during World War II, when the U.S. was engaged in a global conflict with more than 50 million casualties. Currently, the U.S. is engaged in a few low-level hostilities in the Middle East and elsewhere, but it isn’t fighting a World War.

Countries such as Greece, Italy and Portugal, with debt-to-GDP ratios of 177 percent, 133 percent and 129 percent, respectively, are commonly acknowledged to be in trouble, financially speaking. Only one nation in the world beats them in this embarrassing category, and that is Japan, which has a terrible debt-to-GDP ratio of 229 percent. Afflicted by a negative birth rate and reduced economic prospects, Japan has been stagnating financially for the last two decades; there’s a pretty good chance that its future will not be nearly as glorious as its recent past.

Japan is the only country that beats the United States in terms of its debt-to-tax revenue, with an astonishing figure of 2,359 percent compared with the U.S.’s 979 percent.

Tellingly, the distressed economies of Spain and Greece are not far behind the U.S., with numbers of 940 percent and 777 percent, respectively.

In effect, each American citizen is on the hook for $61,300 of U.S. debt, but when only taxpayers are considered, the number is $167,000 per person.

In the middle stages of Trump’s campaign for president he said that tackling the nation’s debt would be one of his key goals. In a February 2016 interview with Fox News’ Bill O’Reilly, Trump complained that under Obama and previous presidents, the U.S. was “getting to be a large-scale version of Greece.”

O’Reilly asked Trump what he planned to do about it, to which Trump replied that a vibrant economy would be needed and that it was important to bring back jobs that had been lost to Mexico, China, Vietnam and Japan. “But you still owe them money,” pressed O’Reilly. “So you bring [jobs] back, how are you going to get the debt down?”

Trump responded that it would be “easy to pay [the debt] back” when the U.S. is treated like a “profit-making corporation with a big fat beautiful heart.” The answer, Trump said, is that the debt would be paid down slowly over time and that higher taxes were not the solution for now.
“The problem we have is our taxes are so high — everybody’s choking.” Instead, Trump promised, “we are going to create a dynamic economy where real jobs are going to be pouring into the country, and we’ll have a country that’s sustainable.”

In a later interview with the Washington Post’s Bob Woodward, Trump was also asked about the debt. Trump replied, “[The U.S. is] not a rich country; we’re a debtor nation. We’ve got to get rid of — I talked about [a stock market] bubble. We’ve got to get rid of the $19 trillion in debt… I think I could do it fairly quickly… I would say over a period of eight years. And I’ll tell you why… I don’t think I’ll need to [enact tax increases]. The power is trade.”

Woodward pointed out that an eight year period amounted to more than $2 trillion per year being knocked off the debt. Trump replied, “I’m renegotiating all of our deals, Bob. The big trade deals that we’re doing so badly on. With China, $505 billion this year in trade. We’re losing with everybody. And a lot of those deals — a lot of people say, how could the politicians be so stupid? It’s not that they’re stupid. It’s that they’re controlled by lobbyists and special interests who want those deals to be made.”

Trump’s promises to honor the debt align with the Republican Party’s platform to pay the amount that has “placed a significant burden on future generations.” But it will be hard to square that obligation with plans to spend $1 trillion on national infrastructure and offer $5 trillion in tax cuts.

In May of last year, Trump made a statement to CNN’s Chris Cuomo, in which he worryingly said, “This is the United States government… you never have to default because you print the money.”

Regards, Ethan Warrick Editor Wealth Authority


http://www.wealthauthority.com/articles/the-u-s-national-debt-is-now-20-trillion/

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