For the first time in its history, the U.S. is seeing a budget deficit in excess of $1 trillion. And this deficit is expected to continue to grow. At a time when the U.S. economy is booming, the national debt is experiencing new heights, with no end in sight. A spiraling budget deficit will likely send inflation soaring. Never before has the U.S. deficit skidded out of control while the economy is in the midst of an upward swing. It is not a good sign.
President Trump favors tax cuts, while a large baby boomer generation is expecting its Medicare and Social Security benefits. Baby boomers started turning 65 in 2011, and the number of boomers retiring will grow to 35 million during the next three decades. The younger, working generation will only grow by 28 million, but will carry the burden of paying for the Social Security and health care benefits of the older generation. With boomers expected to live longer than previous generation, there will be a growing population expecting payments for a longer period of time. Social security and Medicare and other healthcare programs will are responsible for 100 percent increase in government spending with the exception of interest payment on the national debt. The burden of paying for these expenditures will fall on a generation that is seeing its American dream faltering before its eyes.
Are we facing a potential economic crisis?
Trump has signed a bill which will lower taxes for individuals, while the corporate tax rate has been reduced from 35 percent to 21 percent. While Republicans are lauding the tax cuts, Democrats are blaming the soaring national deficit on those same tax cuts and are demanding higher taxes.
If the current trend of cutting taxes without decreasing entitlement programs continues, the budget deficit will likely reach or exceed $2 trillion within the next ten years. It will bloat from 3.8 percent of GDP in 2018 to an excess of 7 percent of GDP in a decade. By 2018, the budget deficit will reach 10.5 percent of GDP.
Within 20 years, the national debt with be 148 percent of GDP.
Americans will become hostage to massive spending and out-of-control debt. With Democrats viewing increased spending and more government expansion as a magic carpet ride, the debt explosion may already be in sight. Their siren song of “Medicare for all” is attracting a great deal of favorable attention.
For decades, the potential cost of an aging boomer generation has been a concern. Now, these same entitled programs are being considered for everyone as the new and revamped “American dream.” Increased spending will necessarily lead to higher taxes, which could turn the dream into a nightmare. Entitlement programs sound good, until someone presents the bill for payment. When a government finds itself in a debt crunch, one method of payment is to sell bonds to willing buyers. This requires printing fiat money or risk a default. If the investors in government bonds become weary of spiraling debt, the resulting crash could be hard and serious, especially for an aging population relying on Social Security and Medicare to survive. At this time, inflation is at 2 percent, with government bond yields at 3 percent.
At our current rate of national spending and plans to establish even more and greater entitlement programs, we will leave future generations with a mountain of debt that may become unsustainable. Instead of a greater standard of living, this mountain of debt will be their legacy.
Interest payments on the national debt alone will become a major part of the federal budget. In 2017, payment on interest rates was $263 billion, while the government spent $590 billion on defense. At this rate, interest rate payments will exceed defense spending. By 2023, the U.S. government will be spending $702 billion on interest payments, with defense spending projected at $679 billion. The increased spending on interest rates will limit government spending on other, necessary projects while the call for more entitlement programs will increase. Discretionary government spending will be held hostage by interest payments. The fact is that within 15 years, annual interest payments will soar to $1 trillion. That is an extremely tight budgetary noose around the neck of those not yet born.
It is unlikely that our current economic boon will last. The political parties are growing further apart, and the gap will only grow wider as ideologies become more entrenched. When the economy slows, as it eventually must, the economic strength to deal with any upcoming recession won’t exist. We will have reached the end of our financial rope.
The reduction in military defense spending will make us particularly vulnerable. We have been at war for 17 years, and our military needs to be restored and strengthened instead of weakened. The national debt is increasingly becoming a threat to national security. As interest rates eat up larger and larger portions of the national budget, infrastructure improvements will fall by the wayside.
Americans need to understand the high cost of government spending sprees. The widening gap between revenue and output will affect the standard of living of future generations, who will be chained at birth to an unprecedented debt accumulated by their parents.
The American dream has always been that future generation will enjoy greater prosperity than the preceding ones. This dream includes better jobs, higher education, and more wealth accumulation. Upward mobility was the norm. The current generation is struggling simply to stay even. The next generation is likely to experience downward mobility and the end of the American dream that has driven prior generations.