"If I ran my office this way, I'd be out of business!" exclaims a character in the movie "Dave," referring to the federal government. America has become a debtor nation. We constantly hear how more people are in more debt than ever, how students are graduating with record amounts of debt, and so on. The problem goes right to the top. The United States government is the greatest debtor in the world. According to the Treasury Department, the national debt has reached $8.5 trillion. This astronomical debt is bad news for our country, but especially for our generation, who will face the consequences of the flood of red ink.
How did we accumulate this debt? The government spends more money than it has each year, creating a budget deficit. This money that the government spends but doesn't have has to be borrowed from banks and other financial markets (think of it like a giant credit card), and is added to the country's total debt. The problem is, the United States is like a person who never pays his credit card debt, and it just accumulates on a huge scale.
As anyone who has ever had credit card debt knows, you get charged interest on that debt, and the United States is no different. America gets charged an annual interest of around $400 billion. That money isn't even going to pay off the debt, but rather just to keep the creditors from collecting the debt in full. As the federal deficit grows, so does the interest, and at the current pace we could be spending over one trillion dollars annually by 2040.
Why is this bad? With America now facing a huge trade deficit, increased competition in key industries such as steel and auto-manufacturing and the rise of new economic stars like India and China, it's not the 800-pound gorilla of the global economy it used to be. Worries about the stability of our debt and dominance in the economy have led to the decreased value of the dollar, causing Americans to pay more for imported products and receive less money for our exported products. If the debt continues, our generation will have to bear the burden of the weak dollar during our prime earning years.
There is also a national security element to the debt. The aforementioned creditors for the United States include the central banks of many nations, including China. Technically, these nations could call for full repayment of the debt they own at any time. This would financially ruin the government and throw the economy into a tailspin. While none of the creditor nations would never actually do this today, what is the geopolitical climate going to look like in 30 or 40 years? If we are to do anything to safeguard the future, we must begin now.
One way to slowly but surely repay the debt is to reintroduce the "pay-as-you-go" method of federal legislation. The process requires lawmakers to outline how they will pay for measures before being able to introduce the bills. This will help ease the pain and move us back towards balanced annual budgets, but it can only get us so far. As painful as it may be for some, we must repeal President Bush's tax cut for the rich. These tax cuts benefit the top one percent of Americans while denying the rest of the nation much-needed tax income. These cuts were unnecessary in the first place, and have failed to produce the economic stimulus that Bush promised. Finally, we need to cut down drastically on government waste. By streamlining the way the government appropriates funds, a great deal of money can be freed up for balancing the budget.
Our generation stands to be harmed the most by the national debt. There is no better time than the present to begin tackling this formidable challenge.
