Debt: America's next crisis?
By Paul Bubon
Do you know how much you owe? According to usdebtclock.org, as of April 1, 2020, the national debt amounts to nearly $74,254 per American, and $191,172 per taxpaying American, and these figures all rise daily. Fortunately for us, we don't "owe" $74,254, rather, it is the portion of our national debt that belongs to each and every person in the United States.
Do you know how much you owe? According to usdebtclock.org, as of April 1, 2020, the national debt amounts to nearly $74,254 per American, and $191,172 per taxpaying American, and these figures all rise daily. Fortunately for us, we don't "owe" $74,254, rather, it is the portion of our national debt that belongs to each and every person in the United States.
Every day, our government spends money on many essential items to keep our society, economy, and nation alive. Things such as infrastructure, Social Security, national defense, Medicare, and the enforcement of our laws all require vast amounts of money to run and keep maintained to ensure that our country continues to be stable. However, over the years, as our country and government gets larger, our level of spending has risen as well, but we find ourselves increasingly unable to keep our spending in line with our level of debt that we owe to others.
Every day, our government spends money on many essential items to keep our society, economy, and nation alive. Things such as infrastructure, Social Security, national defense, Medicare, and the enforcement of our laws all require vast amounts of money to run and keep maintained to ensure that our country continues to be stable. However, over the years, as our country and government gets larger, our level of spending has risen as well, but we find ourselves increasingly unable to keep our spending in line with our level of debt that we owe to others.
For our entire history as a nation, numerous people, from politicians and leaders to journalists and average citizens, have debated the way we spend our money, and some have criticized that a large portion of what is spent is wasted. These debates over fiscal policy are somewhat hard to understand without an interest and knowledge of economics and politics, but the rise in spending is a problem that we, as Americans, will be faced with in the nearing future. As shown by the figure shown on the left from usdebtclock.org, the national debt held by the United States of America is an unfathomable number, and that number rises daily. Congress is regularly spending more and more, without a revenue stream to cover the costs of these laws, and it is getting out of control. If we do not convince our leaders to put us on a stable financial track, we leave a very serious problem unsolved for generations to come.
For our entire history as a nation, numerous people, from politicians and leaders to journalists and average citizens, have debated the way we spend our money, and some have criticized that a large portion of what is spent is wasted. These debates over fiscal policy are somewhat hard to understand without an interest and knowledge of economics and politics, but the rise in spending is a problem that we, as Americans, will be faced with in the nearing future. As shown by the figure shown on the left from usdebtclock.org, the national debt held by the United States of America is an unfathomable number, and that number rises daily. Congress is regularly spending more and more, without a revenue stream to cover the costs of these laws, and it is getting out of control. If we do not convince our leaders to put us on a stable financial track, we leave a very serious problem unsolved for generations to come.
How the Government stays funded (and, often, builds debt)
How the Government stays funded (and, often, builds debt)
Before looking at the history of the national debt of the United States, it is helpful to understand what the term "national debt" really means, and how our government helps finance itself when tax revenues don't match what it spends. According to an article by thebalance.com, a website that posts information and news about finance and financial literacy, the national (or public) debt of the United States is "the sum of all outstanding debt owed by the federal government". In this article, it explains that roughly two-thirds of the public debt is held in the form of bonds and other forms of borrowed funds, and the other third is borrowed from other government agencies, for example the Social Security Administration.
Before looking at the history of the national debt of the United States, it is helpful to understand what the term "national debt" really means, and how our government helps finance itself when tax revenues don't match what it spends. According to an article by thebalance.com, a website that posts information and news about finance and financial literacy, the national (or public) debt of the United States is "the sum of all outstanding debt owed by the federal government". In this article, it explains that roughly two-thirds of the public debt is held in the form of bonds and other forms of borrowed funds, and the other third is borrowed from other government agencies, for example the Social Security Administration.
Bonds and other transferable forms of debt, called securities, are issued by the United States Treasury on a regular basis. Anybody in the general public can purchase these in return for a guaranteed repayment at a fixed date in the future, with a small interest rate attached. Simply put, anybody in the world can loan the government money (normally in increments of $1,000) and be guaranteed repayment in the future. United States Treasury Bills, as they are called, have a history of security and reliability, and are held by countless individuals and institutions worldwide. But this also means that the government has a major responsibility: paying each one of its "loans" back to whomever lent them money. And as our debt rises, we come closer to potentially having difficulty paying our lenders back.
Bonds and other transferable forms of debt, called securities, are issued by the United States Treasury on a regular basis. Anybody in the general public can purchase these in return for a guaranteed repayment at a fixed date in the future, with a small interest rate attached. Simply put, anybody in the world can loan the government money (normally in increments of $1,000) and be guaranteed repayment in the future. United States Treasury Bills, as they are called, have a history of security and reliability, and are held by countless individuals and institutions worldwide. But this also means that the government has a major responsibility: paying each one of its "loans" back to whomever lent them money. And as our debt rises, we come closer to potentially having difficulty paying our lenders back.
The History of America's Treasury System
The History of America's Treasury System
The history of the United States Government's financial system dates back to July 4, 1789, when the first law regarding spending and tax revenue was passed by Congress. The law laid taxes on goods such as rum, boots, gunpowder, windows, coaches, and other goods. The book One Nation Under Debt by Robert E. Wright lays out the financial history of the United States with great detail, and explains the founding father's views on how to best spend and raise money for the then-newly founded country. The most notable debate that occurred was the squabble between founding fathers Alexander Hamilton and Thomas Jefferson. Both were very influential in early American politics, and their feud defined the early history of our nation. Thomas Jefferson and his allies and supporters wanted a small government, with more state power, while Alexander Hamilton and his camp fought for a stronger government with great efficiency. Their differences in policy preference stems from the two main fears of that time; Jefferson feared another tyrannical government while Hamilton feared anarchy and instability for the new nation. One way Hamilton sought to stabilize the new nation was to stabilize its money.
The history of the United States Government's financial system dates back to July 4, 1789, when the first law regarding spending and tax revenue was passed by Congress. The law laid taxes on goods such as rum, boots, gunpowder, windows, coaches, and other goods. The book One Nation Under Debt by Robert E. Wright lays out the financial history of the United States with great detail, and explains the founding father's views on how to best spend and raise money for the then-newly founded country. The most notable debate that occurred was the squabble between founding fathers Alexander Hamilton and Thomas Jefferson. Both were very influential in early American politics, and their feud defined the early history of our nation. Thomas Jefferson and his allies and supporters wanted a small government, with more state power, while Alexander Hamilton and his camp fought for a stronger government with great efficiency. Their differences in policy preference stems from the two main fears of that time; Jefferson feared another tyrannical government while Hamilton feared anarchy and instability for the new nation. One way Hamilton sought to stabilize the new nation was to stabilize its money.
Ultimately, Hamilton's ideas were more successful at impacting early fiscal policy, as Hamilton was our first Secretary of the Treasury. As a result, his work and ideas can still be seen today in our current policy and the way our government keeps itself funded. One precedent that Hamilton set was the introduction and promotion of the idea of the American government being able to borrow money. In his Report on Public Credit, Hamilton argues that "If the maintenance of public credit, then, be truly so important, the next enquiry which suggests itself is, by what means it is to be effected? The ready answer to which question is, by good faith, by a punctual performance of contracts. States, like individuals, who observe their engagements, are respected and trusted: while the reverse is the fate of those, who pursue an opposite conduct." In this statement, Hamilton is establishing that a government should be held to the same level of fiscal punctuality and honesty as an individual person would. Essentially, he stated that government should have to be extremely responsible with its finances as anyone else would be forced to.
Ultimately, Hamilton's ideas were more successful at impacting early fiscal policy, as Hamilton was our first Secretary of the Treasury. As a result, his work and ideas can still be seen today in our current policy and the way our government keeps itself funded. One precedent that Hamilton set was the introduction and promotion of the idea of the American government being able to borrow money. In his Report on Public Credit, Hamilton argues that "If the maintenance of public credit, then, be truly so important, the next enquiry which suggests itself is, by what means it is to be effected? The ready answer to which question is, by good faith, by a punctual performance of contracts. States, like individuals, who observe their engagements, are respected and trusted: while the reverse is the fate of those, who pursue an opposite conduct." In this statement, Hamilton is establishing that a government should be held to the same level of fiscal punctuality and honesty as an individual person would. Essentially, he stated that government should have to be extremely responsible with its finances as anyone else would be forced to.
How have we done since Hamilton?
How have we done since Hamilton?
Since the days of the founding of our nation, our Government has done many good things to protect and support the American people, such as winning crucial wars, building unmatched infrastructure, lifted millions out of poverty, and much more. But is our spending without fault? An article by Investopedia, a website covering financial topics, says no. In the article, it lists six times the government has made questionable spending decisions, via legislation called "earmarks". Every year, our legislators in Congress sign bills to fund certain projects, and these bills often include "earmarks" to allow spending on items not originally intended in the bill. The article lists $500,000 given to a rural South Carolina museum for teapots, a $15,000 grant given to Florida Atlantic University for a study on the affect of alcohol on mice, and various infrastructure projects that the author deems "outrageous". But, arguably most outrageous of all, is the article's mention of Representative Duke Cunningham, a Republican from California, who pled guilty to accepting $2.4 million in taxpayer dollars as bribes in return for more military spending. While this list is brief, the number of earmarks in our laws is countless, with new laws constantly being written and passed with new earmarks.
Since the days of the founding of our nation, our Government has done many good things to protect and support the American people, such as winning crucial wars, building unmatched infrastructure, lifted millions out of poverty, and much more. But is our spending without fault? An article by Investopedia, a website covering financial topics, says no. In the article, it lists six times the government has made questionable spending decisions, via legislation called "earmarks". Every year, our legislators in Congress sign bills to fund certain projects, and these bills often include "earmarks" to allow spending on items not originally intended in the bill. The article lists $500,000 given to a rural South Carolina museum for teapots, a $15,000 grant given to Florida Atlantic University for a study on the affect of alcohol on mice, and various infrastructure projects that the author deems "outrageous". But, arguably most outrageous of all, is the article's mention of Representative Duke Cunningham, a Republican from California, who pled guilty to accepting $2.4 million in taxpayer dollars as bribes in return for more military spending. While this list is brief, the number of earmarks in our laws is countless, with new laws constantly being written and passed with new earmarks.
The graph on the right is a graph from the Government Accountability Office (GAO) published in 2008 that outlines the rise in debt held by the public (American citizens) since 1940. As shown in the graph (published in 2008), the level of public debt held by American citizens is expected to reach 100% of Gross Domestic Product before 2030, which means that the entire economic output of the United States for one year would be required to pay off all of our public debt. World War II, the costliest and deadliest war in human history, caused our public debt to reach 109% of our Gross Domestic Product, which was paid down to roughly 40% in 1970.
The graph on the right is a graph from the Government Accountability Office (GAO) published in 2008 that outlines the rise in debt held by the public (American citizens) since 1940. As shown in the graph (published in 2008), the level of public debt held by American citizens is expected to reach 100% of Gross Domestic Product before 2030, which means that the entire economic output of the United States for one year would be required to pay off all of our public debt. World War II, the costliest and deadliest war in human history, caused our public debt to reach 109% of our Gross Domestic Product, which was paid down to roughly 40% in 1970.
However, there is obviously a vast difference between spending during World War II and spending in our current era. For one, the spending in World War II not only had to cover the war effort, but there were also massive New Deal programs still in place at that time to help our nation escape the Great Depression. This spending was also essential for both economic and literal survival from various great threats at that time. Today, besides potentially the COVID-19 pandemic that is affecting America at the time of this writing, there are relatively few threats, and the government spends relatively less than it did in the 1940's. Public debt in and of itself is not bad, but why is it such an imminent threat now?
However, there is obviously a vast difference between spending during World War II and spending in our current era. For one, the spending in World War II not only had to cover the war effort, but there were also massive New Deal programs still in place at that time to help our nation escape the Great Depression. This spending was also essential for both economic and literal survival from various great threats at that time. Today, besides potentially the COVID-19 pandemic that is affecting America at the time of this writing, there are relatively few threats, and the government spends relatively less than it did in the 1940's. Public debt in and of itself is not bad, but why is it such an imminent threat now?
The public debt problem that America is faced with is an imminent threat not only because of how much money we owe, but also because of who we owe. According to the United States Treasury, foreign entities own about 39% of all the public debt in the United States. The majority of this public debt, sold in the form of Treasury Bills, is owned by countries friendly towards the USA. However, there is a possibility that some of the countries that own our public debt could become hostile towards us at some point in the future, which could cause serious economic and security issues for the United States.
The public debt problem that America is faced with is an imminent threat not only because of how much money we owe, but also because of who we owe. According to the United States Treasury, foreign entities own about 39% of all the public debt in the United States. The majority of this public debt, sold in the form of Treasury Bills, is owned by countries friendly towards the USA. However, there is a possibility that some of the countries that own our public debt could become hostile towards us at some point in the future, which could cause serious economic and security issues for the United States.
What can we do as citizens to lower our national debt?
What can we do as citizens to lower our national debt?
With our national debt currently at over $24 trillion, and our deficit increasing daily, it is important that the American people are aware of this situation. The United States is the one of the most free, wealthiest, safest, and most powerful nations on the face of the Earth, and funding a government that can provide these things to the people is not easy nor cheap. However, there are things that our government can do to reverse our debt, as we have done in the past. What we can do alone as citizens about our national debt is limited, but if we are more mindful and aware of what our tax dollars are being spent on, we can return to a good, fiscally-sound path.
With our national debt currently at over $24 trillion, and our deficit increasing daily, it is important that the American people are aware of this situation. The United States is the one of the most free, wealthiest, safest, and most powerful nations on the face of the Earth, and funding a government that can provide these things to the people is not easy nor cheap. However, there are things that our government can do to reverse our debt, as we have done in the past. What we can do alone as citizens about our national debt is limited, but if we are more mindful and aware of what our tax dollars are being spent on, we can return to a good, fiscally-sound path.
One thing we have the right to as Americans is to be heard by our leaders. By reaching out to our lawmakers, we can encourage them to take a more fiscally responsible path for our government, and reverse this problem. Another option is to vote for candidates that offer to reduce spending and/or the national debt. A $24 trillion problem is not to be solved alone, and this is why it is so important that every citizen, and especially every lawmaker, understand that the government must heed responsibility with its finances. Together, with our voices and our votes, we can push our country (and its debt) back to stability.
One thing we have the right to as Americans is to be heard by our leaders. By reaching out to our lawmakers, we can encourage them to take a more fiscally responsible path for our government, and reverse this problem. Another option is to vote for candidates that offer to reduce spending and/or the national debt. A $24 trillion problem is not to be solved alone, and this is why it is so important that every citizen, and especially every lawmaker, understand that the government must heed responsibility with its finances. Together, with our voices and our votes, we can push our country (and its debt) back to stability.