Debt, debt, debt

Economists, politicians and pundits debate the consequences of debt. Too much is bad, too little is bad. How will federal debt impact inflation? You can get an “expert” opinion to support just about any point of view.

But now we are going to test all the theories.

Spending to deal with the pandemic crisis is essential, we all know that. But adding to that spending for anything not directly related to the economic and health crisis is not. Taking advantage of this crisis to foster your agenda and circumvent rational debate is reprehensible.

Future generations will pay the price, but that doesn’t seem to matter to many politicians who are adept at kicking the fiscal responsible can down the road.

The economist Paul Krugman has long promoted deficit spending during economic crisis. He’s probably right, you need to do what you need to do. However, that also means that when there is no crisis, there should be responsible spending leaving room to increase deficits and debt in a crisis. The USA has ignored that part of the equation through uncontrolled spending and ill conceived tax cuts. Now generations of Americans will pay the price.

In the last ten years total federal outstanding public debt has gone from $12,311,349,677,512.03 to $23,438,814,358,270.50. According to the Debt Clock you can add another $1.1 trillion in state debt, not to mention $7 trillion in unfunded state pension liabilities.

Most of us ignore these numbers, but there is debt we probably can’t ignore including student loans, mortgages, home equity loans, car loans and credit card debt. We Americans are great at living at or above our means with little left for emergencies. But unlike the federal government, we can’t print money.

I read a news story recently about a dual income couple who had student loans, a mortgage and two car loans. Their income covered these obligations. It appears they were living just at their means … but what if one of them lost their job, had hours cut back or pay cut? There is no room to deal with a financial crisis.

We Americans and our elected officials seem incapable of long-term thinking and planning, unable to think about financial what ifs.

Sooner or later all this spending and borrowing will have consequences. Those consequences are likely to be one or more or of the following:

Higher inflation

Higher taxes

Cut backs of needed services

And what that all means is that younger Americans struggling to meet current obligations and saving for retirement will have a much tougher time in the years ahead.

2 comments

  1. I have been worried about the America’s debt for a long time. I just looked at the world debt clocks for other counties. The US has a ratio of 70.6% Public debt / GDP. Many countries are over 100% and Japan is at 279.3%. You look at Europe and most counties are over 100% and were hit hard by this pandemic. If the US doesn’t implode by our own poor financial mismanagement, the world still might be pushed into a worldwide depression when these other economies implode. The future does not look bright for the young. Their only hope is to maintain little to no debt now.

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  2. Larry Summers, former Treasury Secretary under Pres. Obama and former President of Harvard, was interviewed by David Weston last week on Bloomberg.

    Summers said he believed that the world economy may be headed to a worse recession than the one in 2008.

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