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National Debt

Bankrupt Nation

  • March 25, 2009

    According to the Peter G. Peterson Foundation, America now owes more than the collective net worth of all its citizens combined.

    Released in December of 2008, the foundation lists U.S. obligations at $56.4 trillion while the total household net worth being $56.5 trillion; numbers compiled before the latest round of bailouts, which have pushed the country into a bankrupt situation.

    The only way that the U.S. can continue to operate at these levels of indebtedness is to literally print more money and sell it to foreign countries such as China.

    As was discussed in a previous article, however, while China is the largest owner of U.S. debt in the world, it has become more wary of continuing to purchase it due to the fact that the printing of more money devalues what is already in circulation (supply v. demand).  This is what led to Germans using their currency for fuel in the early 20th century: it became so devalued due to so much of it being produced that it was more efficient to burn it than try to spend it.

    While we would find it hard to imagine that the U.S. dollar will ever hit THAT low, the potential for the collapse of the dollar has provided incentive to China to suggest replacing the dollar as the global monetary standard with what is called the Special Drawing Right, which is a standard based on multiple currencies.  This standard limits the global impact if one country or economy falls on hard times, however, it would also raise interest rates for U.S. citizens on almost all types of loans since it would cause a fundamental restructuring of loans since they would no longer be tied solely to the dollar’s worth.

    The thorny topic this all brings up is: how do we get out of debt?

    We can’t tax our way out of debt since even if there were a 100% tax on everyone in the U.S. we’d still be in the red.  Cutting services is almost a given at this point, with the most obvious targets being Medicare and Social Security, although very few politicos are going to suggest this because they’d like to keep being politicos.

    Our nation is facing a time of almost cataclysmic challenges that will define the future of our country and the policies that guide it there.  Hard choices will need to be made and they will need to be made soon if the nation is to continue functioning at the levels that we, as its citizens, expect.

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