We must be careful when we hear Debt and Deficit, because they are not one and the same. The Deficit relates to the Budget and overall government spending exceeding revenues. The National Debt is total of all years of deficit spending.
We may ask, “Why should we care? The government can just print more money”
It is not that simple, the printed dollar is an IOU for a value. If the sellers of a product or service believe our IOU has a lower value, they will demand more dollars for the same product or service. —Devaluation of the dollar occurs.
When the government has more debt than it can pay it becomes necessary to ensure our dollar’s value. The government selling IOU’s does this; the government sells bonds. The IOU bond’s face value is the price holder will receive at a set future time. Buyers of the bonds need a financial reward to purchase our IOU, so the bonds are sold at less than face value. The money from the bonds goes into the US Treasury to hold up the dollar.
We can view an on-line National Debt Clock as provided by the US Treasury at http://www.treasurydirect.gov/NP/BPDLogin?application=np.
The debt stands today at a staggering $11.5 trillion, equivalent to over $37,000 for each and every American. This year's deficit is now estimated at about $1.85 trillion.
NOW STOP JUST A FEW MINUTES AND THINK ABOUT THIS STATEMENT. We are talking about newborn children having a debt of $37,000. And if we want to exempt them from this debt, we must take it upon ourselves to pay our debt and their debt before they start working.
Interest payments on the IOU's alone cost $452 billion last year--the largest federal spending category after Medicare-Medicaid, Social Security and defense. It's quickly crowding out all other government spending. And the Treasury is finding it harder to find new lenders.
Looking at the history of our debt, our first debt started in 1790 when the newly formed United States of America assumed the war debt of the Continental Congress. Only once since this period has the nation been debt free 1834-1835.
While staying on a generally upward trajectory, over several decades, the debt has climbed sharply; except for a respite from 1998 to 2000, when there were annual budget surpluses, reflecting in large part what turned out to be an overheated economy.
The overall debt is now slightly over 80 percent of the annual output of the entire U.S. economy, as measured by the gross domestic product.
By historical standards, it's not proportionately as high as during World War II, when it briefly rose to 120 percent of GDP. But it's still a huge liability.
The national debt is soaring with government increased spending, TARP, Omnibus Bill, Economic Stimulus Bill, 2010 Budget, and etc. This spending is helping to force down the value of the dollar, the IOU’s are becoming less attractive as investments. Some major foreign lenders are already cutting back on their purchases of U.S. IOU’s.
And if major holders of U.S. debt were to flee, it would send shock waves through the global economy and sharply force up U.S. interest rates and devalue the dollar.
What would happen if the National Debt Bubble would burst?
Will we see a freeze on government and social security retirement increases, freeze on defense spending, freeze on government employee salaries, closing of government parks and museums, government lay-offs, halting of government construction projects, freeze on foreign aid spending, major tax increases, national lay-offs, and riots?
We often hear our elected officials use the term “unsustainable” when they oppose a particular policy, but they appear blind when it comes to the National Debt. We only need to look at the state of California and its lack of rational leadership to see the problem. Our deficit spending is unsustainable and the National Debt is a crisis waiting to happen.
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