The National Debt
and why you should care
Presented by MJ Walther
What is the National Debt?
This is the national debt clock. It displays second-to-second updates on how much the United States owes, and how much each American family would have to pay the Government in order to pay off our debt. The scary thing is, the number shown on the clock in this picture is long outdated.
Currently the National Debt is 17.7 Trillion Dollars... and rising.
So how did this even happen?
The fact that the United States is in debt means that our Nation owes money to other countries, because we spend more money than we make. That money goes mostly towards the military, and programs such as Social Security and Medicare.
The thing is, America was never debt-free. In the revolution-era, there were no taxes. So the US had to borrow money to cover its expenses. To pay off the debt, the US eventually had to demand that its people pay taxes. By the time of the Civil War, the debt had nearly been paid off. However, the US had to borrow masses of money again in order to finance the war of 1812. In the late 19th century, the economy grew enough to significantly reduce the national debt as a percentage of economic output (the total value of all goods and services produced in an economy).
The national debt rose again due to World War I, and some was paid off by selling war bonds to the public. Through a combination of budget surpluses and payments from the losers of war, the US was able to reduce the debt by more than a third. During the Great Depression, the economy collapsed, and the debt rose to 44%. By the end of WW II, national debt had hit a record of 113%. However, US economy grew and reduced a significant amount of the debt, and debt continued to fall until the early 1980s.
Due to a recession, debt rose again. Large amounts of money were spent on defense and social programs, and debt hit its peak of 49% in the early 1990s. Tax increases helped lower the debt until 2001. After September 11, spending increased dramatically on military and domestic programs. Combined with tax cuts and a recession, debt-to-GDP ratios skyrocketed.
This chart shows the US debt as a percentage of the Gross Domestic Product (GDP). The GDP represents the total dollar value of all goods and services produced over a specific time period. Basically, the GDP is the size of the economy.
What's so scary about the national debt anyway?
This is one trillion dollars.
That's twelve zeros. One trillion dollars is 1,000 billion dollars... that's a lot. Our national debt is over 17 times that number. Visualizing that amount of money could look a little something like this:
Each one of those crates is $100 million. And even this picture is outdated.
Since the year 2000, the national debt has more than doubled. Since President Obama took office in 2009, the national debt has increased by $ 6.6 trillion. In 2010, the national debt was 94% of the GDP, which is equivalent to nearly as much new debt as the rest of the governments of the world combined. Possibly the biggest problem we face is that we don't have any money to pay off the debt. To make up for that, the US borrows even more money, that it has to pay off later. Combined with interest rates, the national debt is growing exponentially.
The national debt has become overwhelmingly large. So much so, that if you were to tape one trillion $10 bills end to end, and wrap them around the equator, you would be able to do so 380 times. That amount would still not be enough to pay off our national debt.
Why should I care?
Say you are given a credit card with $10,000 on it. You get excited and decide to go on a shopping spree. Obviously that money would only last so long. If you continued to buy things you couldn't afford, you would go into debt. You would reach a point where you wouldn't be able to buy anything with that card anymore, and no one would give you loans either. Eventually, if you can't pay off your debts, things that you had spent your money on would be taken away.
America has been spending more money than it earns for quite some time. The national debt is already massive and more is added to it every minute. Sooner or later, the US will reach a point where we just can't borrow any more money. Then, the government will have to find ways to pay off it's debt without borrowing.
What are our options?
We can either reduce the amount we spend, which would mean cutting off vital programs such as social security and the military. If we cut spending, we would be giving up important programs that ensure our safety and standard of living. We could increase the amount of money the government makes, which means increasing taxes. If the US increased taxes, we would have to close a massive gap of what the government spends and actually makes. So why can't we just print more money? The more of something there is, the less it is worth. If we printed more money, the value of the dollar would decrease, resulting in an inflation and worsening our predicament.
The gap between the red line and the green line is the deficit; the difference of what the government spends and what it actually makes. Currently, the deficit is in the billions, without anyone able to pay it off.
The national debt will only continue to rise. This graphic shows the share of debt of a child born today over the course of his or her lifetime.
And this is why you should care: Debts only get passed down from generation to generation, and that cycle can only last so long. Soon, our generation will inherit the national debt, and then it will be your problem as much as anyone else's. We will not be able to withhold our current standard of living for much longer.