The emerging national debt crisis

Like a doomed sinking ship, the U.S. is drowning in debt, and the debt keeps getting larger.

Uncontrolled debt has been spiraling for years, and the burden will only become heavier. It is very likely that the U.S. will increase its national debt by $12 trillion in the next ten years through burgeoning spending programs and decreased revenues due to an economic slowdown. This is in addition to the $21 trillion debt that already exists and exceeds 100 percent of GDP.

Unless this trend is reversed, the debt will increase to $35 trillion by 2019. That’s an annual increase of close to 5 percent. Unfortunately, it is showing no signs of ending. Over the past 50 years, the deficit averaged only a 2.9 percent increase. Currently, the national debt is expected to exceed 360 percent of GDP by 2050. And these numbers are actually optimistic, assuming no unexpected economic crisis.

Federal spending on healthcare programs and for the elderly will comprise most of the anticipated debt. By the time Generation X begins to retire, the coffers may actually be empty.

The current economic growth is likely to level out at an average rate of 1.7 percent annually, down from 3.1 percent. That means less revenue for the government at the same time it faces an increased demand for more spending. The fiscal health of the U.S. economy is not looking good.

How did the U.S. economy get so out-of-control? One reason is that the national deficit keeps growing. Every new government program adds a notch to the national debt. The second reason is Social Security. While retirees have been adding to the Social Security Fund for their retirement for decades, the government has “borrowed” that money to pay for other expenses, leaving the Fund depleted. Tax increases become necessary as baby boomers and subsequent generations retire. And as they retire, they no longer contribute to the tax revenues, thereby widening the deficit gap even further. Economically speaking, the rule is simple. The wider the deficit, the greater the debt.

Where there is debt, interest payments are always lurking in the background. The fact is that without a few years, the U.S. government’s interest payments will exceed its spending for the military and Medicaid. By 2029, $900 billion in interest payment will come due. This leaves even less money for a crumbling infrastructure that desperately needs revitalizing.

The national debt is the elephant in the room that politicians are ignoring. If our debt is not restructured, the country may eventually face a default. That’s when we’ll see the ultimate financial crisis.