The United States of America’s debt jumped by $328 billion this year making the total federal debt now stands at $17.075 trillion. This federal debt is owed by the government but has a significant impact on how the public lives, and how much they give back to the government. The amount the treasury can borrow is limited by the US Debt Ceiling.
Major concerns have been raised about the long-term sustainability of the US federal government’s fiscal policies. In the beginning of 2013, approximately $5 trillion (47%) of the public debt was owned for foreign investors, the largest of which were the People’s Republic of China and Japan at just over $1.1 trillion each.
To make matters worse, according to the Government Accountability Office,
“The United States is on a fiscally unsustainable path because of projected future increases in Medicare and Social Security spending, and that politicians and the electorate have been unwilling to change this path.”
What We Will See In The Future
As the national debt rises, the likelihood of the US federal government defaulting also increases; therefore the treasury will have to raise the debt yield. This reduces the amount of tax revenue available to be spent and what happens is the US has less money to spend on public activities; specifically economic enhancement projects become more difficult to execute.
The other thing that we are going is see is significant inflation. As the rate offered on federal securities increases, investments in companies in the US looks worse. Corporations will then need to start raising the prices of goods and services and hence inflation will likely occur.
The most imperative risk is the risk to the US national security, especially given the significant foreign investment from countries like Japan and China. When there is a risk of the US defaulting on its debt service obligation, they will (and are starting to) lose its social, economic and political power. What will this mean for the future of the ‘most powerful country in the world?’
This issue is a big one, and one that is extremely hard to understand, even for the brightest in our society. What we know for sure is that the US needs to do something about their level of spending and put an action plan together that aims to be more fiscally responsible. I’m nervous for the years to come.