US Debt Heading One Way

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Many of the world’s economic problems are rooted in debt.  Of course this takes many forms and there’s government Debt, residential debt and the debt that sits on company’s balance sheets with seemingly little issue.  Debt isn’t necessarily bad, in fact it would be easy to argue than in today’s global economy it is almost impossible to be successful without acquiring some levels of debt either personal, corporate or national.

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However there are times when the levels of debt in some scenarios just seem so incredibly large that it’s difficult to even comprehend that basis premise that these debts ultimately need to be paid back at some point.   The US National debt is one of those incredibly scary figures which is so large it almost seems an irrelevance.  You would guess that reducing it would be the cornerstone of any election promises but it appears that both the successful Trump proposals and the rejected democratic proposals would both have actually raised this figure.  Of course, we’ll only see how the Republican plans pan out but it’s certainly a concern that reduction doesn’t seem to be even considered as a policy objective.

Some analysts have estimated that the democrat’s plans would have added about $200 billion dollars to the country’s debt which seems a huge increase.  Until you look perhaps at the estimates of the Trump proposals which would apparently add a staggering $5.3 trillion dollars to the national debt.  That would represent an incredible ratio – almost 105% of  gross domestic product owed.

It’s easy to see where these figures would come from, Trump’s populist promise to slash taxes across the board obviously would cost billions at least in the short term.  The corporate tax reduction would also incur huge costs but presumably this would eventually pay off in big rises in GDP as more companies are attracted to the low rate environment.

Indeed any rises in national debt in relation to policy changes need to be looked at in the context of the overall economy.  If GDP starts to rise significantly these should eventually feed through to overall spending and the debt should start to fall again – it is however a huge risk.

Other parts of the policies would also incur a cost, investing in education raises debt again in the short term yet an educated work force is usually more productive and efficient.   Badly motivated and educated people sitting at home watching TV claiming welfare isn’t going to help the economy.  Although perhaps the shares in media firms like Netflix might improve despite the illegal downloading using anonymous torrenting techniques – see this article on this contentious issue. Unfortunately you also need to invest heavily in capital and infrastructure projects in order to create the employment needed.

Despite all the solutions to the global crisis seemingly involving more debt, it’s easy to see why people get uncomfortable with the current levels.   It’s huge and the people in charge don’t seem to have any sort of idea how to reduce it – President Obama proudly claimed that federal spending has risen at the slowest level of any President over  the last 60 years.  That means it’s still heading upwards just not quite as quickly!

John Simmons

Author of BBC Blocked Abroad

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