In light of the recent Eric Cantor vs. David Brat upset, memories of our national debt crisis are resurfacing. Cantor was 1 of 28 Republicans who voted to raise the debt ceiling, which is a likely catalyst for his surprising defeat. Since it seems that our fight with our national debt is unending, today's post will be discussing this infamous debt.
Our debt currently amounts to $17.075 trillion, and while this number is definitely a large sum, it is not exactly the same as the average American in debt to, for instance, his or her credit card company. The United States was born, sadly, in debt. Costs from the Revolutionary War were high, and the US was forced to borrow money. However, it was not until the 1930s that the United States, under the direction of President Roosevelt, began to over spend in order to solve financial troubles not caused by a war. Both World War II and the Cold War skyrocketed the US debt, and our debt is still increasing to this very day. So, it seems as though the United States has always been in debt, and will probably always be in debt. What exactly does this mean for us?
Contrary to popular belief, the national debt does indeed affect the average American citizen. For example, as the debt increases, the likelihood of our government defaulting on its debt also increases (this is the situation that predicated the government shutdown in October). This means that the Treasury will have to increase the yield on treasury securities, which will reduce the amount of tax revenue available to spend on social programs. Therefore, the average American citizen may face a lower standard of living. As the yield on treasury securities increases, the cost of a mortgage loan also increases. The Federal Reserve responds by increasing interest rates, which pushes down the prices of homes since prospective buyers can no longer afford such large mortgages. This means that the net worth of American homeowners will be reduced. Finally, the risk of defaulting on our debt is most detrimental to the international standing of the United States. Our country will lose pull as a political and economic hegemon.
Clearly, the debt is pretty significant. So why is solving the debt problem not the top priority on every politician's agenda? This is where the difference between the United States's debt and the average American's debt comes into play. The United States does not have to pay back its debt, we just have to ensure that our debt grows more slowly than our tax base. Furthermore, a citizen in debt is usually in debt to someone else. The United States is largely in debt to... ourselves! 28.4% of our debt is owed to another arm of the American government, whereas China (our largest overseas creditor) only holds 7.6% of our debt. The United States is easily able to spend enough money to service our debt.
I have, hopefully, cleared up some misconceptions concerning our national debt. The potential harms are undeniable, as well as the reasons why politicians are not worried about the harms. Your opinion, however, on how our national debt should be dealt with is rightly up to you and likely aligns with your political beliefs.
