As I type this, the national debt is $14.2 trillion dollars. It's difficult to wrap one's mind around such a larger number. To put it in some sort of perspective, remember that a trillion dollars is to a million dollars what a million dollars is to one dollar. Simply to count to 14.2 trillion would take about 450,000 years. If we taped 14.2 trillion $1 bills together, they would wrap around the Earth more than 53,000 times. And because the federal government continues to run massive annual deficits, the national debt is increasing by billions of dollars every day.
The numbers seem so abstract that it is easy to dismiss the national debt as something that is not really real and therefore not threatening. But this is a dangerous delusion. Of all the problems facing America, the national fiscal crisis is certainly the most serious. The national debt poses a far greater threat to the United States than militant Islamic terrorists, the rise of China, or any other possible foreign adversary. We are in a fiscal crisis, and if we do not find a way to get ourselves out of it, the American republic could be brought to its knees.
The United States accumulates debt by issuing U.S. Treasury bonds, allowing people to loan the federal government money. The government promises to pay the money back, plus interest, at a later date. The $14.2 billion worth of these bonds sit quietly in the bank accounts of massive pension funds, mutual funds, investors big and small, and the cash reserves of foreign governments. Right now, a U.S. Treasury bond is considered by global financial markets to be one of the most secure investments a person can make, and the federal government has never once defaulted on its debt. That could soon change, however, and the consequences could be disastrous for the country.
The first and most obvious problem the national debt presents to the United States is its impact on the annual federal budget. Currently, we have to devote roughly $200 billion a year simply to pay interest on the debt we already owe. This is not much different than the interest you pay on your credit card every month; you have to pay it but you don't get anything for it. But every year the government runs a deficit, the amount needed to pay the interest on the debt grows ever larger, and every dollar we spend paying the interest on the debt means one less dollar to spend on anything else.
Paying interest on the debt currently consumed about 6% of the federal budget every year, but this proportion is rapidly increasing. It is projected that the amount of money required for debt interests payments will overtake Medicare as a spending item as soon as 2018. By 2020, paying interest on the debt will require 15% of the entire budget, and it will simply skyrocket after that. Unless we achieve a balanced budget and begin paying down the debt, we will continue to have to allocate an ever-increasing portion of the annual budget to debt interest payments. It we took this scenario to its logical conclusion, we would eventually have to devote 100% of the budget to debt interest payment, but the country would actually have fallen apart long before we ever reached that point.
No matter what we do, the government it going to have a far smaller amount of money to pay for its programs in the future. If you think the current battles in Congress over taxes and government spending are bitter, just wait a few years. What we're seeing right now is not even a preview of what's to come; it's more like those ads you see projected onto the movie screen before the previews even start.
But the budgetary pressures caused by the deficit/debt problem are only the beginning of our problems. As it becomes increasingly apparent to investors and foreign governments that the United States will have trouble paying off its massive debt, they will make the common sense decision to back away from investing in U.S. Treasury bonds. This, in turn, will force the federal government to offer higher interest rates on its bonds in ordering to persuade them to keep lending the government money.
Since the interest rate on U.S. Treasury bonds has decisive influence on other interest rates within the American financial system, this increase will be like a poison administered to the American economy and to the prosperity of ordinary Americans. Interest rates on everything - mortgage loans, car loans, student loans, credit cards - will spike. As the recent economic trouble has revealed, we already have trouble with interest rates as they are. How much worse will it be for the American people if interest rates go through the roof?
Even if we could find a way to maintain our deficit spending habits that did not lead us down the road to inevitable disaster, from a purely moral standpoint it would still be unacceptable for us to continue relying on massive amounts of borrowed money. Every dollar we spend without a balanced budget is a dollar that we steal from future generations, who obviously have no say in whether or not we should spend it. Thomas Jefferson, for one, believed that every generation that incurred a debt had an ethical obligation to pay it off in its entirety within twenty years. Even if we could get away with it in the short term, are we really willing to shackle our children and grandchildren with our debts?
There are three possible ending scenarios for this fiscal crisis. One is that the United States simply defaults on its debt, like a person declaring bankruptcy when he can no longer pay his credit card balance or his mortgage. The government could simply announce that it cannot, and therefore will not, pay back its debt or the interest it owes on it. It this happens, the result would be a worldwide economic collapse the likes of which no one has ever seen. The U.S. dollar would become essentially worthless overnight. Every retirement and pension fund, every savings account, and the deposits in every bank in the country, would completely lose their value in the blink of an eye. The Second Great Depression, perhaps far worse than the first one, would begin.
The second possible outcome is that the government attempts to pay its debts simply by asking the Federal Reserve to print more money and loan it to the federal government. The Fed has already printed an immense amount of money (creating it out of thin air, in essence) in order to combat the financial collapse and recession of 2007-2009, and somehow managed to get away with it. But we would not be so lucky a second time.
If the debt levels become so unsustainable as to require the Fed to create the trillions of dollars necessary to pay off the debt, the obvious consequence would be mass inflation. A gallon of milk that cost you $3.50 one week might cost you $4.50 a few weeks later, and this increase would be mirrored by rises in the price of just about everything else, too. Americans have enough trouble making ends meet as things are; if runaway inflation takes hold in this country, our economy would be shattered, quite possibly reducing us to the level of a Third World country. This outcome would have essentially the same results as the first possibility of simply defaulting on the debt.
The third outcome is not particularly pleasant, either, but it is the only one which avoids absolutely disastrous consequences and preserves the integrity of the republic: the federal government must immediately take steps to secure the country's fiscal future by cutting spending and implementing targeted tax increases. Rather than attempting to run a big government on low taxes, we need to begin running a medium government on medium taxes. Above all, the federal government needs to balance its budget, stop borrowing money, and begin the long and arduous task of paying down the massive national debt.
Needless to say, this will not be easy. Both political parties will have to abandon their sacred cows and begin to work together. Republicans will have to abandon their obsession with tax cuts and supply-side economics. Democrats will have to abandon their obsession with spending increases and stop treating even the most minor cut to their favored programs as if they represented the end of the world. Changes in attitude which were unimaginable even a few years ago will have to be embraced. The partisan venom will have to end, and the power of special interest lobbyists will have to be broken. Everyone will have to accept the fact that they will not be able to depend upon government services to nearly the same extent as they have in the past, and we shall all have to look more to ourselves and our communities for our needs.
This will require what amounts to a Second American Revolution, in which the people demand the necessary fiscal and political reforms and refuse to take no for an answer. It will be the greatest challenge our nation has faced since the Second World War, but it must happen, not only because we have a moral obligation not to pass our debts onto our children and grandchildren, but also because the consequences of failure are too terrible to contemplate.