Government Debt Nears 100% – Trustnodes

Government Debt Nears 100%


Government debt, October 2020

The United States government is projected to be 98% in debt by the end of this year according to the Congressional Budget Office.

Next year, government debt will reach its highest level in history, they say, at 107% of Gross Domestic Production (GDP).

Debt will then continue to grow to 195% of GDP in 2050 if taxes and spending as well as borrowing remain unchanged.

Bankrupt USA?

Just interest payments are set to overtake non health and social security related mandatory spending by the end of the decade.

Payments on the huge borrowed capital of $27 trillion is not even being envisioned, with costs to rise significantly if interest rates increase due to higher inflation.

“High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on how that debt is financed, rising inflation,” they say, adding:

“The growing debt burden also raises borrowing costs, slowing the growth of the economy and national income, and it increases the risk of a fiscal crisis or a gradual decline in the value of Treasury securities.”

That translates to roads full of potholes, no new train lines or major infrastructure projects, lower investment in education, closing down of museums and libraries, and overall more poverty.

All of this is accelerating as debt has gotten out of hand with speed since the 2008 banking crisis. They say:

“Federal debt held by the public has increased significantly in recent years. At the end of 2007, federal debt was 35 percent of GDP. Deficits arising from the 2007–2009 recession and from policies implemented to counter the effects of the downturn caused debt to grow in relation to the economy over the next five years. By the end of 2012, debt as a share of GDP had doubled, reaching 70 percent, and it has climbed since then, reaching 79 percent by 2019.”

The repayment of the capital of this debt leads to a monetary contraction which makes money rarer and therefore you’d think the economy would contract too.

The repayment of just interest however has an inflationary effect as that interest itself becomes permanently new money while the newly borrowed capital becomes temporary new money until repayment.

It has a sugar rush effect that doesn’t last due to its artificiality unless it is invested in long term productive activity.

Arguably that hasn’t quite been the case with many of these trillions as plenty of it has been used to finance endless wars and other unproductive activities.

Therefore it’s not clear whether productivity will be able to keep up with this speedy growth in debt.

If it doesn’t, the government doesn’t owe this debt to the public, but to banks. The banks then owe it to the public.

Thus if the debt can’t be repaid, usually because banks refuse to lend any further, then the banks effectively take ownership of the government and the country.

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