The U.S. economy grew by 4.1 percent during the past quarter, and that’s good news. All the economic signs are positive. Or are they?
There is much less discussion about debt, which has hit another record high. The global debt just reached $247 trillion for the first quarter of this year. That is $29 trillion higher than two years ago. While we rejoice in growth, let’s consider that the global debt-to-GDP ratio exceeds 318 percent. The U.S. debt to GDP exceeds 100 percent. The flood waters are rising, the dams are broken, and we are literally drowning in debt.
Emerging markets, such as Argentina and Nigeria, have accumulated $58.5 in debt, $900 billion of which are in U.S. bonds which will mature in 2020. When interest rates eventually rise, as they will, repayment and refinancing will be more difficult and expensive. Some debts, without a doubt, will be defaulted.
Investor Warren Buffett admits stocks are currently overvalued. He foresees the market going down, but then pulling itself back up. Others are a bit more pessimistic. David Lipton of the IMF has indicated that the burgeoning debt, combined with low interest rates, pose a tremendous economic risk. Dan Coats of U.S. National Security views America’s $21 trillion debt as not only an economic problem but a security risk, as well.
With rising interest rates looming and trade war between the U.S. and China a real possibility, there are reasons for concern.
Where there is debt, interest payments follow. If current fiscal policies, including President’s Trump’s tax cuts, continue, interest payments could climb to $1.05 trillion by 2028. This would exceed payments for the military or Medicaid as part of the U.S. budget. Interest payments are the fastest part of our budget.
Debt, and the interest payments thereon, are a commitment. However, the current policy of tax cuts and increased spending are decreasing instead of increasing the federal revenues which would allow for repayment. It is up to Congress to set some sound, sane fiscal policies. The simple fact, known to any ten-year with an allowance, is that you can’t keep spending more than you take in.
