16 Things You Need to Know About Government Debt
The U.S. government owes over $16 trillion. For most of us, that number is hard to imagine. Let's examine the 16 things you need to know about the government's debt:
1. Your portion of the total government debt is a little over $51,100. Each of the 313 million citizens would need to write a check that big to pay off the national debt.
2. The debt continues to rise. This fiscal year it increased $1.2 trillion--your share was $3,900.
3. The federal government deficit has been $1 trillion or more for each of the last four years.
4. Your share of the interest paid in fiscal year 2011 was over $1,400--equivalent to each person writing a check each month for $116.
5. Interest on government debt consumes 6 percent of the federal budget.
6. The interest on government debt is likely to go up. Current rates are at historic lows. A review of history shows that interest expense could easily double or triple. Your $100 per month contribution could turn into $300.
7. The "official" debt is only part of the picture. The latest report of the Social Security and Medicaid trustees shows an unfunded liability of $63 trillion. An "unfunded liability" is a promise that's been made without the money to back it up. The unfunded liability is approximately four times larger than the acknowledged federal deficit and amounts to about $200,000 per citizen.
8. The government won't declare bankruptcy. When the government doesn't have enough money to meet obligations and doesn't want to--or can't--borrow money, it just prints some. Right now that's called "quantitative easing" and has added over $3 trillion to the money supply. The result is more dollars available to buy the same amount of goods and services--or, as it's commonly known, inflation.
9. Government debt causes higher prices. Gas prices have doubled in the last four years. OPEC knows that the dollar is worth less, so it wants more for each barrel of oil. The same is true of everything else you buy.
10. Government debt reduces the value of your savings and investments. The inflation caused by printing money means that the money you've already saved buys fewer and fewer goods. A 4 percent inflation rate will eat up half your savings in 18 years. Higher rates will do it faster.
11. Government debt makes it more expensive to borrow. When you want to take out an auto loan or get a mortgage, you're competing with the government to borrow money, meaning the rate you pay will be higher.
12. Government debt squeezes business and makes it harder to hire new employees. Government borrowing makes it more difficult for small business to borrow the money they need for expansion. The possibility of higher taxes discourages businesses from growing. The result: Fewer new employees are being hired.
13. Government debt will make Medicare and Social Security promises meaningless. Both are expected to run out of money within the next 20 years. When that happens, you'll be asked to agree to reduced benefits or higher taxes--or both.
14. Government debt never dies. When you die, your kids do not inherit your debts unless they're on your accounts. That's not true with government debts. Any part of the $250,000 that isn't repaid in your lifetime will be passed on to your children.
15. Eliminating new government debt will not be easy. We're way past the point of easy fixes. Raising taxes on the wealthy will not be enough. According to the White House Office of Management and Budget, if you taxed income over $250,000 you'd raise $56 billion next year and only solve 5 percent of a $1 trillion dollar deficit.
16. Cutting unpopular programs like foreign aid (last year $53 billion) won't be enough. A majority of us will need to give up some benefit or tax deduction.
Gary Foreman is a former financial planner who founded The Dollar Stretcher.com website. The site features many personal finance topics including more information on ways to start a savings plan.
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