Wednesday, November 18, 2009

Skyrocketing National Debt

Eleven trillion, eight hundred thirty-nine billion, sixty-three million, one hundred fifty-one thousand, five hundred fifty-four dollars. The national debt of the United States reached that mark on September 20, 2009, and just continued climbing higher. Each day, millions more dollars are added to that value, causing it to increase at a rate not seen since WWII ("National Debt Graph").

To put $11.8 trillion into perspective: 11.8 trillion one dollar bills could be used to build the entire Pentagon without rooms, halls, or a central green space 4.2 times. It is also 14 times the amount of physical dollars currently in circulation worldwide ("How Currency Gets into Circulation").

With national debt currently at $11.8 trillion, each of the 300,000 residents of the United States owes about $38,477 of that debt. Interest accrues at a rate of $10,000each second for the debt held.

Why does the United States federal government owe nearly $12 trillion? The heart of the problem is the annual budget deficit caused when Congress spends more money than is returned as tax revenue. Any businessperson knows that constantly spending more than earnings should allow will lead to bankruptcy. For the U.S. government bankruptcy isn't possible; there are some debts too large to default on. Instead, growth will stagnate and financial collapse would ensue. Eventually, the United States would lose its hard-fought position as the world's singular superpower to another country, such as China, the largest holder of U.S. debt.

How can the cycle of debt be broken? Individual states, such as Nebraska require a balanced budget in their constitutions. In fact, there have been several attempts to amend the U.S. Constitution to include a balanced budget provision. Currently 32 states have petitioned for a Congressional Convention to develop an amendment since 1975. If two more states were to petition Congress, a convention would have to be held to discuss the matter.

At certain times a balanced budget would be impractical, such as during time of war. Provisions would be made to account for these exceptions. Eventually, an effort could be made to eliminate all debt held by the federal government. This would lead to a new era of American prosperity as it would allow for tax cuts.

One simple way of dealing with the issue is to phase out Social Security as it stands today. When the system was developed during the Great Depression, it was intended for only a select number of impoverished seniors. Today, millions rely on monthly checks to maintain a healthy lifestyle. Social Security could be reigned in by drastically reducing benefits for all those born after a certain date (to be set for one year following the passage of the law). However, their tax expectation would also be reduced to make up for the difference in benefits. This way, Social Security could once again act as a safety net for America's elderly, not as a wealth redistribution program.

Another valid method at reducing national debt and the tax burden would be to implement a flat tax; one that doesn't unfairly tax America's most successful. Apart from lessening the load, this change would also serve to greatly reduce the inefficiencies of the tax code by simplifying it.

Defense spending reform could also help to reduce the national debt as defense is the largest single budget item. A military that focused on reducing manpower needs and waste could save massive amounts of money. As technology continues to advance, the need for a large standing army will only decrease, allowing for the re-integration of members of the military into the general workforce and economy.

No matter how critical an issue, America has an infamous habit of procrastination. Unless some sort of balance is found within the next few years, a point of no return will be crossed. Once that happens, the United States will no longer be able to retain its position of global power and supreme authority that it has come to enjoy.

The issue of national debt requires conviction to make the difficult decision on the part of those in Washington. Both Congress and the President must work together to prevent the impending economic pitfall before time runs out.

An interesting debt clock:

-The Capitalist

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