As a young student in 1981, I vividly recall the news announcement, during the early months of President #RonaldReagan's first term, that the US debt had hit $1 Trillion. At the time, it was an unheard of and mind-boggling number, in terms of any country's national debt.
Over the years, with successive US administrations, Republican and Democrat, the debt has ballooned.
This week, the news broke that US #debt had exceeded #$40Trillion!
What in the world does $40 Trillion look like?
Well, for perspective, if you were to stack $100 bills high enough to equal $40 trillion, it is said the pile would rise to roughly 25,000 miles. That is more than the entire circumference of the Earth. Laid end-to-end, those same bills would stretch around the planet more than 1,000 times.
And if that is still too challenging to visualize, another way of looking at the number is to equally divide the entire debt among the 340 million Americans, including infants. If you did, each person would owe about $118,000.
So, what's driving American debt?
Deficits. Mandatory social security and medicare spending. Tax cuts. Increasing defense expenditure. The financially hemorrhaging effect of wars. Crisis response spending including the #COVID stimulus. And rising interest payments, which now surpass defense spending, among other factors.
Who is America's debt owed to? Mostly American investors, the Federal Reserve, social security trust funds, and $9.3 Trillion to foreign holders, including the three largest - #Japan, the #UK, and #China.
The implications of the debt are far reaching.
Domestically, interest payments alone will crowd out development priorities, and shifts the debt burden to a future generation of taxpayers.
Geopolitically, US debt risks eroding the dollar’s reserve-currency privilege. Defense and diplomacy budgets will be tightened, while the US deterrence and global leadership will be weakened.
Still America has a few aces up its sleeve.
But it will require hard political choices that have so far been avoided, including -
▪︎ stabilizing debt-to-GDP
▪︎ cutting the annual deficit to -3% of GDP
▪︎ raising the retirement age
▪︎ reducing waste, fraud, and low-value programs
▪︎ broadening the tax base, and
▪︎ growing the economy faster.
The remaining "ace" is the dollar’s reserve-currency status. However, that advantage is eroding. Major credit-rating agencies have downgraded the US, and the dollar’s share of global reserves is gradually declining.
America is still a nation of great privilege, economically and financially. But the window for reforms and a lasting reset, are narrowing at an amazing pace each year.
Analysis by Victor Oladokun
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