The US National Debt: Can it Be Balanced, or Will The USD Crumble?

  • Noah Peterson
  • Dec 27, 2016 10:00AM

The US national debt is nearing the $20 trillion mark, and continues to climb at a neck-breaking pace. If you break that down into debt owed per US citizen, that means every American would have to contribute $62,000 in order to pay it off. Federal spending has gotten completely out of control, and it doesn’t seem to be slowing down. Entitlement programs such as Medicare, Medicaid, Social Security, and Obamacare are some of the main culprits. If America is unable to balance its annual budget and get it under control, it may soon lead to an increase in taxes, a weakened economy, and eventually an untrustworthy US dollar. How did we get here, and what can be done to slow its rise? 

The United States has the largest debt in the world – the largest debt burden held by any civilization in human history, as a matter of fact. When the federal government spends more money than it can collect, the result is a fiscal deficit which is added to the debt. In essence, the rising debt clock is nothing more than overspending every year, without falter. 

Measured by an average percentage, the greatest period of expansion of debt in the United States occurred under the Reagan and Bush administrations, from 1980-1991 (13.4%). In second place, the next largest increase was between 1974-1979, at 10.9%. The US national debt exploded after the Global Recession, but actually only ranks third at 10% from the time frame of 2008-2013. Regardless of the fact that our annual debt percentage has decreased in comparison to other time periods, under the Obama administration America has racked up an additional $9 trillion in debt. 

The great economic boom that the US enjoyed from 1982, all the way up until the housing bubble burst and stock market crashed in 2008, was predicated on debt. This led to the worst US financial crisis since the Great Depression in the 1930s. It is expected to rise to $23 trillion by the end of Donald Trump’s presidency. 

During the early years of the US, the founders of the constitution split the federal government into three branches: Legislative, Judicial, and Executive. The original intent of the federal government included defense in the form of a military, a national currency, and post offices as a means of communication. The taxing power of the federal government at the time was very limited. Many entitlements which provided for health and safety were dependent upon each state. Over time, this began to shift greatly. 

The biggest expansion of the federal government occurred in 1913, with the creation of the Federal Reserve. The 16th Amendment to the US Constitution was also enacted, giving Congress the ability to put forth an income tax. This made Congress much more powerful, as it then held control over a large amount of money. After the Amendment was ratified, income tax as we know it today was born. Although it was a big step which would ultimately lead to the US overspending year after year, at the time the lowest tax bracket was just 1% - the highest rate was only 7%! Wouldn’t we love to go back to that era? Unfortunately, the federal government has become so bloated over the last century, taxes had to be increased over time in order to contribute to its programs. 

The Great Depression rocked the United States in the 1930s, after massive bank panics and failures. Many were homeless, or living in “shanty towns” outside of once thriving metropolises. The federal government decided to act in 1933. President Franklin D. Roosevelt branded this the New Deal, beginning the greatest expansion of the government (and in turn, debt) in the nation’s history. The New Deal birthed the Federal Housing Administration (FHA), the Federal Deposit Insurance Corporation (FDIC), and over 30 other government agencies and work programs.

All of these great new programs came with a price, of course. Despite tax brackets being raised during this time period, FDR’s New Deal was so expensive that the US government ran annual deficits for the next 14 years straight. Through the 20th century, the federal government continued to fatten. Americans began to change their view of the government: Not as what was originally intended by the Founding Fathers, but as a nanny state that would help them whenever in need. Socialized welfare, medical care, and Social Security blew up to monstrous proportions that continue to rise to this very day. 

Once the federal government puts a program into place, it doesn’t seem to ever get removed. As the old expression goes, “If you give a man a fish, you’ll feed him for a day. If you teach a man to fish, you’ll feed him for a lifetime.” Unfortunately, we haven’t been teaching Americans to fish by continuing to support massive entitlement programs – the federal government feeds the masses, one fish at a time, and someone has to pay for it. This leads to an inevitable increase in taxes, and a running deficit each fiscal year. 

When America exports products, a demand for US dollars is created, as customers of these goods or services need to pay in dollars. This will make the customer have to convert their local currency into ours, strengthening the USD. Also, when the government or corporations issue bonds to raise capital, these bonds are often bought by foreign nations and citizens. The customer of these bonds will have to purchase them in US dollars, as well. Further, if foreigners desire to own corporate stocks in the US, dollars must be used to complete the purchase.  All of these purchases which require payment in USD strengthen America’s national currency. 

As taxes must continue to rise in the United States due to the overspending of the federal government, the US economy will suffer. Consumption of goods and services will decline due to the increased tax burden on the population, which will ultimately slow down economic growth. A weakening economy will lead to rising unemployment rates across the nation. In this inevitable event, foreigners will begin to lose their faith in the US, and those who purchased bonds or stocks will begin to sell. Through this sale, they will convert the cash back into their local currency, weakening the US dollar. 

The bottom line is that if we don’t begin to make some hard decisions and balance our budget annually, the world will lose faith in America’s ability to maintain itself. Our currency will suffer greatly, and will lead to another economic collapse. With economies connected on a global scale, it won’t only be Americans who pay the price, either. 

Sources:
US National Debt by Year
Investopedia: Factors That Drive The US Dollar
Britannica: The New Deal