The U.S. National Debt officially just reached sixteen trillion dollars.
While shocking, this may not be much of a surprise, as we’ve been building towards this for a while. This February, our debt-to-GDP ratio, a prime indicator of economic health, soared to over 100%. In other words, for the first (and only other) time since the Great Depression, the United States owes more than it produces. And, with today’s catastrophic turn, it’s very clear that it’s only getting worse. We’re heading toward a fiscal cliff.
Earlier this spring, researchers at the National Bureau of Economic Research published a paper identifying 26 distinct episodes of lopsided debt ratios, or “debt overhang” since 1800 in advanced economies. In their analysis, they reached the following conclusions, which should be a frightening wakeup call for those who downplay the significance of a number so large it borders on esoteric:
1. In all 26 cases, the average duration was twenty three years, with five of the six shorter episodes (occurring for less than ten years) happening immediately after World Wars I and II. By contrast, the authors found that the long average duration was caused primarily by public debt buildup during recessions. The lesson? Self-inflicted debt issues as massive as ours do not resolve themselves overnight. Get ready for more pain.
2. Additionally, the authors found real negative effects on growth, which were significant “even in the many episodes where debtor countries were able to secure continual access to capital markets at relatively low interest rates. For non-economists? Even when money is cheap, debt still makes it hard to grow.
As we struggle with unemployment over eight percent, simple economics tell us that putting Americans back to work will be extraordinarily difficult without real growth. And, with the debt increasing at such a high rate, the outlook looks pretty bleak. Given things the way they currently stand, we’re sharing a destiny with economies on the brink like Italy and Greece, countries who have shouldered unsustainable debt burdens for over a decade now. Simply put, we’re staring at a fiscal cliff.
To almost everyone, sixteen trillion dollars is a number so ridiculous it’s unfathomable, and we won’t be able to address a number so large without systemic reform that is bold and courageous. Recently, Ending Spending published The Fiscal Cliff, a book we commissioned which lays out a plan that meets that criteria. We then sent a copy to all 435 members of Congress in hopes that they would become inspired to show the sort of leadership that values doing the right thing over re-election. We’ll see.
Visit this link and download a copy of the e-book. It’s free and we want you to read it. Even if you don’t agree with everything in it, we can at least agree on this: with sixteen trillion dollars on the table, it’s time to start talking real solutions.