In the wake of several multi-billion dollar bailouts, many of us have become desensitized to these astronomical amounts of money. I used to think that a million dollars was an exorbitant figure, but it has now been reduced to mere “chump change”. According to a recent report from the Treasury Department, the United States’ debt is now over $12 trillion; to get a better sense of that unfathomable amount of money, here it is written out: $12,000,000,000,000.

Americans are notorious for racking up huge credit card bills and taking out mortgages that they can’t afford, and for several years the government has essentially been doing the same thing. With the deficit at $12 trillion, each American’s share comes out to roughly $40,000. Even while this number seems impossible to overcome, the US continues to borrow more than one trillion dollars every year. This trend has been made possible due to low interest rates, but that may be changing soon.

The Fed will inevitably have to raise interest rates at some point to avoid excessive inflation—which is already beginning to pose a threat—and when that happens, it will be exceedingly difficult to find other countries and private investors who are still willing to finance America’s debt. At current debt levels, just a one-percent increase in interest rates would equate to an extra $80 billion in interest payments.

This isn’t the only problem when it comes to the escalating deficit; there is an extraordinarily high amount of short-term Treasury notes that are due in the coming months, which the US Treasury will have to find a way to manage. Officials estimate that over a third of the country’s marketable debt will be due in the next few months, roughly $1.6 trillion. In an effort to take advantage of the current low interest rates, the Treasury is attempting to get borrowers to replace their short term notes with more long term 10 and 30-year securities.

To make matters worse, the government is beginning to experience the anticipated increase in Medicare and Social Security costs due to aging baby boomers, not to mention the potential cost of the new health care legislation and the surge in Afghanistan, which President Obama is prepared to announce early in December. For years the US has been piling on more and more debt without a plan for repayment, and it appears that this will catch up with us sooner rather than later.

It is estimated that by 2019 it will cost us in excess of $700 billion a year to cover just the interest on the debt. Annual federal income taxes amount to $904 billion, meaning that 40-percent of every dollar will go to paying off interest on the national debt.

Instead of adopting a more stringent budget, the US has continued to steadily increase their borrowing. After adding a record $2 trillion to the deficit this year, the White House estimates that it will add another $3.5 trillion over the next three years.

“What a good country, or a good squirrel, should be doing is stashing away nuts for the winter,” said William H. Gross, managing director of the Pimco Group. “The United States is not only not saving nuts, it’s eating the ones left over from the last winter.”

President Obama recently addressed the issue of the country’s rising debt, noting that the US faced a dreaded “double-dip” recession if the country didn’t adopt more conservative borrowing policies.

“I think it is important, though, to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the US economy in a way that could actually lead to a double-dip recession,” President Obama said.

While politicians and businessmen relentlessly preach fiscal conservatism, it appears to simply be political rhetoric. That is not to say that all of the problems stem from lack of action by large corporations and the government; there is a fundamental flaw in most American’s thinking that goes something like, “I’ll buy this now and worry about it later.” We are beginning to see the repercussions of this mindset through a flurry of foreclosures and bankruptcies across the country. These measures are essentially a “get out of jail free” card for citizens, but what happens when a one of the most powerful governments on earth goes bankrupt? If there isn’t a drastic change in US policy, we may have to find out.

Popularity: 1% [?]

View James Gelfer's Profile      Subscribe via RSS