The deficit, the nation’s bank account of sorts, is a major indicator of the country’s economic condition. If the National Debt of the United States cannot be described as a situation experiencing a crisis then little else can. At their greatest level in history, the current deficits provide the economy with a small boost, but if allowed to continue on its path of projected growth, deficits will eventually result in lower standards of living caused by a sustained stagnation of the economy. Citizens will also be deprived of various government programs such as those targeted at the economically disadvantaged – a state many more people will experience if the current trend is not reversed. Other government-funded interests such as education, military, and infrastructure will suffer greatly as well. Why these statements are valid along with imparting a general overview of the national debt so as to illuminate the crisis is this paper’s purpose. If Congress does not control its overspending through measures such as passing a balanced budget amendment to the Constitution and adhering to it, the country’s economic future is in deep peril.
Started in 1791, the national debt was, by those days’ standards, an incredible $75 million. Due to President Andrew Jackson’s prudent approach to government spending, the national debt was lowered to, again adjusted to today’s standards, to an incredible $37 thousand (Suter, 2004). The Reagan/Bush administrations of the 1980s ran the debt up by historic proportions. When President Clinton took office in 1993, the debt stood at $2.4 trillion. The massive increase of debt was not used for infrastructure, education, public programs or even to finance a war. As a result of Reagan’s ‘trickle-down economic theory, the money wound up in the pockets of the rich. In the early 1990s, Congress adopted a ‘pay-as-you-go’ policy and federal spending cuts which resulted in budget surpluses for four consecutive years. Clinton announced that the nation could pay off the debt by the year 2013 if it stayed on the present course. That optimistic prediction has long since been forgotten. Since 2000, the debt has tripled. The ‘pay-as-you-go’ policy expired in 2002 allowing Congress to cut taxes, a politically advantageous move while also increasing spending (Schoen, 2006).
According to the Commerce Department, the yearly payment on this debt, the deficit, reached $725.8 billion. This represents a 17.5 percent increase from 2004 (Armstrong, 2006). These figures are well past most peoples’ comprehension. If, for example, a person were to spend a million dollars a day since the birth of Christ, they would have to continue the spending spree for 700 more years to have spent one trillion dollars. Multiply that amount by eight. That still does equal the current national debt. The current President Bush administration cut the taxes of the rich while increasing military expenditures on The War on Terror, invasions of Iraq and Afghanistan, and the rebuilding of those countries. The debt has now exceeded even the Reagan administration’s record levels. It has severely hampered America’s ability to continue to effectively defend itself or become involved in other potential conflicts worldwide. “There is a growing concern about what the increasing U.S. national debt will do to the nation’s ability to influence world affairs” (Suter, 2004).
In this time of increased globalization of the world’s financial markets, American legislators are more easily able to borrow from other countries that are experiencing a surplus of money. The United States is regarded as a good investment and has an unlimited ability to secure loans without a problem, but loans must be paid back, with interest. Germany, Japan, China, and other countries own a large piece of America, a potentially disastrous prospect. For example, in February of 2005 the nation’s seventh-largest creditor with $53 Billion in holdings, the Bank of Korea, revealed that it intended to “diversify reserves out of U.S. dollars” (Hirose, 2005). The Dow Jones dropped 174 points and the dollar lost significant value that same day. What if tomorrow, a major U.S. creditor lost confidence in this nation’s ability to honor the debtor decided to exert political influence by means of economic threats related to the debt? Taiwan, China, and Hong Kong combine to control more than $360 billion (“America’s Foreign Owners”, 2006). What if they all united against the U.S.? It probably won’t happen anytime soon but the fact that it could happen should be enough to alert Congress to the crisis.
One or a combination of creditor countries could cause a sudden and shocking reduction of the economy which would further increase the debt. Interest rates would rise causing a real estate market crash and businesses couldn’t borrow money as easily. The U.S. is a debtor nation of enormous proportions. That in itself is a crisis waiting to happen but the fact it is subject to the political interests of foreign countries isn’t the immediate crisis. America’s population is aging. “As we age, the declining share of the population that is made up of workers will have to support the retirement and health needs of the growing wave of baby-boom seniors. Clinton told CNN in a 2005 interview that the United States depends on Japan, China, Britain, Saudi Arabia, and Korea “to basically loan us money every day of the year to cover my tax cut and these conflicts and Katrina. I don’t think it makes any sense. I think it’s wrong” (Stephanopoulos, 2005). Clinton turned a Reagan/Bush $300 deficit into a $160 billion surplus by the year he left office. Spending restraints employed by Clinton brought federal spending down from 22 percent of the Gross Domestic Product (GDP) in 1992 to 18 percent in 2001, the lowest since 1966. During the first 3.5 years Bush was in office, the GDP grew by 2.4 percent. It had swelled to 3.2 percent by the 3.5 year mark of the Bush administration (Freeman, 2004).
A century and a half ago, the German social philosopher Karl Marx addressed and predicted capitalistic societies succumbing to debt in order to pay for military conquests designed to increase wealth. Marx suggested that centralization, the mergers of large capitalist industries, would become increasingly frequent. Centralization enlarges market share, decreases competition, and further reduces labor costs. The one element of a nation’s wealth that the working class would forever take part in is its national debt. A truer prediction has never been postulated. The ruling class creates the debt by subsidizing needed and, some would argue, un-needed projects that fuel personal interests in addition to military expenditures. Workers must pay off this debt with a portion of their earnings. “Taxpayers pay interest to the rich bondholders of that national debt. The rich make money both ways – in the creation of the debt and the interest paid on it” (Sudborough, 2004).
The nation at present is facing many crises including the war in Iraq, illegal immigration, health care, etc., but the one of most important is the national debt. It alone could tip the balance of power in the world. The U.S. would follow the lead and policies of other nations and be plunged into a third-world-like economic status. Maybe the most troubling aspect of the debt is that it is future generations of Americans that will be most affected by the greed of the present generation. Although Congress, much the same as businesses and individuals, should be obliged to balance the federal books, the national debt continues to rise. If this trend is not reversed, the lifestyle that is enjoyed in the U.S. will evaporate as it quickly becomes another third-world nation. The ballooning of the National Debt is cause for concern from both positions, however, as if foreign nations decide not to continue to finance America’s Federal deficit, interest rates will skyrocket, bond rates will fall and the stock market’s increases, which are not based on rising profits, will plummet for many long years to come.
References
“America’s Foreign Owners.” (2005). The Trumpet. Philadelphia Church of God. 2008. Web.
Freeman, Robert. (2004). “Evaluating Bush’s Economic Performance: A Field Guide for the Perplexed.” Common Dreams Newscenter.2008. Web.
Hirose, Taizo. (2005). “Dollar Declines as Bank of Korea Plans to Diversify Reserves.” Bloomberg.com. 2008. Web.
Schoen, John W. (2006). “Why is the National Debt Out of Control?” MSNBC. 2008. Web.
Stephanopoulos, George. (2005). “Clinton: Bush Should Raise Taxes to Pay for Recovery.” CNN, Politics. 2008. Web.
Sudborough, Gary. (2004). “The Relevance of Marxism.” Indymedia South Africa. 2008. Web.
Suter, Keith. (2004). “The Next International ‘Debt Crisis’ is in North America.” Online Opinion. 2008. Web.