The Looming Danger of Debt
The United States National Debt now numbers close to 20 trillion dollars, the largest in the world for a single country. In fact, the U.S. debt is fairly similar to that of the entire European Union, made up of 27 countries. This number comes from the money owed to the individuals: companies and countries who have bought U.S. Treasury bonds, bills and notes. Treasury bonds have long been the most secure form of investment around the world. The global economy is built on the view that such bonds are absolutely fail-safe. If it became apparent that the Treasury would be unable to return on bond investments, the world economy would find itself on shaky ground, faced with the possibility of a global economic recession. Treasury bonds also serve a valuable purpose in balancing investment portfolios and decreasing risk, especially in those of retirees. The U.S. dollar and Treasury notes function like gold; they indefinitely hold their value.
The majority of this debt is held by the public which includes individual people, corporations and state governments. For people, this owed money comes in the form of Social Security or personal investments. The more worrisome part of the national debt is foreign investment, the largest holders of which are China and Japan, each weighing in at around 7 percent of the total debt. Many foreign exporters buy up Treasury bonds to keep their currency low. This makes the prospect of importing goods from these countries very attractive and cost effective to the United States, propping up foreign economies, especially China and Japan. If these foreign governments balk at the idea of taking a loss on their investments into the supposedly unshakable Treasury bond, they will be repaid in a weaker dollar and endanger their economies as well as that of the United States. Interest rates will spike and economic growth will grind to a crawl.
The issue is constantly avoided by congress and politicians on both sides of the aisle. To limit the amount of money the government can borrow, there is a debt ceiling that is supposed to be enforced to prevent exactly this kind of situation. Nonetheless, that ceiling has been raised almost every year since 1981, when it topped out at a trillion dollars, except under the Clinton administration. Funding and debt disputes, if severe enough, can lead to government shutdowns such as the one in October of 2013, estimated to have cost the economy billions of dollars and sacrificed some fourth-quarter growth.
From a different perspective, a Silicon Valley startup called Unanimous AI created a tool that allows thousands of people to respond simultaneously to a question on any subjects, including predictions on future events. This “hive mind” has proven to be wildly accurate, having correctly predicted the eight teams to make the baseball playoffs, as well as the two finalists and the champions (the Cubs). These predictions were published four months in advance. When asked to name the greatest threat facing the world, the hive mind responded with global financial collapse. Such a collapse would likely be caused by the incredible debt of individual countries, most notably of the U.S.
The only way to decrease our national debt is to ensure that the country makes more money than it spends, through increasing taxes. Raising taxes by just 1 percent for income tax and corporate tax, as well as closing tax loopholes, would add hundreds of billions of dollars to federal revenue, enough to pay for our $800 billion defense budget. The United States also has one of the worst infrastructures, especially regarding transit systems, among developed countries. Increasing the tax on fuel from a rate that was established years ago, when fuel was half as much as it is currently, would add billions to the Highway Trust Fund, increasing the infrastructure budget.
The government’s side of the deal is to reduce spending. The United States spends more money on the military than the next eight countries’ military budgets combined, which is, needless to say, a ridiculous amount. Most of this money goes to developing weapons made for outdated forms of combat, focused on conventional warfare in spite of the fact that the battlefield has drastically changed. Cutting the defense budget and allocating the remaining funds more efficiently would not only decrease the debt but force the military to focus on the wars at hand and their specific needs. Naturally, any politician who runs on a platform of increased taxes and lower defense funding won’t stand a chance, pointing to a deeply rooted problem in how the U.S. elects its representatives. Unless this culture is changed and voters begin to realize the dangers of the current path, there will be no going back.