Why US debt is more political than economic

Editorial The debt of the United States government is $34 trillion. To stabilize it, 2.1% of GDP would need to be raised in taxes or spent less. However, considering our political landscape’s profound differences, that seems challenging.

The United States government is $34 trillion in debt, did you know that? $34 trillion, I said! However, I don’t believe it to be a very concerning quantity. I’ll make three points to start. Firstly, even though that is a huge figure, when considered in the historical and global perspective, it doesn’t appear nearly as scary as many people believe. Second, if there is a problem with debt, it is almost exclusively a political one, therefore finding a sustainable solution would not be difficult from an economic standpoint. And last, far too often, those who profess to be really concerned about debt are also hypocrites.

Concerning how much is the debt? Although it’s a substantial sum, the US economy is also very large. The amount of debt that exists today as a percentage of GDP is comparable to that which existed at the close of World War II.

“Whatever it takes” by Mario Draghi.

Additionally, it is far smaller in comparison to Japan’s current debt and far smaller than the percentage of British debt after the end of the previous world war. Furthermore, there has never been anything approaching a debt crisis in any of these situations.

However, there are plenty of past instances of debt crises, right? Recall the 1980s in Latin America, the 2010–2012 crisis in Southern Europe, and other such situations. Almost every debt crisis documented in history has involved a nation that borrowed in the currency of another nation, making it susceptible to a liquidity crisis when the lenders, for whatever reason, abandoned ship and the nation was unable to print money to pay them back until the panic passed.

In actuality, the European Central Bank’s then-president Mario Draghi’s declaration that the institution will assist financially troubled debtor nations expeditiously ended the euro crisis. The crisis that France experienced in 1926 is the sole glaring example of a national crisis brought on by a large debt incurred in national currency, and it is a very convoluted tale.

Governments are never required to pay back debt.

Even so, there are plenty of us who do not think that the current level of American debt will lead to a financial and economic collapse. Nevertheless, we cannot help but be a little uneasy about the forecasts that indicate debt will continue to rise as a share of GDP over the next thirty years. What would ease this discomfort, if anything?

Remember that unlike private citizens, governments are never required to pay back their debt. How did the US settle its debt from World War II? No, it didn’t. The federal debt was marginally greater in 1961 than it had been in 1946 when John F. Kennedy assumed office. But as a percentage of GDP, it has dropped dramatically due to inflation and growth.

Politics on the right is an issue.

What then would it take for debt as a percentage of GDP to stabilize during the ensuing three decades? We would have to either increase taxes or reduce spending by 2.1 percent of GDP, according to figures from the Congressional Budget Office. That’s not a huge amount, either! Raising two percent more would not alter the fact that the United States is a low-tax nation and presumably wouldn’t have any negative effects on the economy because we collect a far smaller percentage of GDP in taxes than the majority of other wealthy nations.

If debt stabilization appears challenging, it is because even small moves toward accountability are exceedingly challenging to accomplish given our bitterly divided political environment. And by “deeply divided political landscape,” I mean the Republican-led policies that further exacerbate the unachievability of long-term budgetary sustainability, despite their constant denunciations of the ills of debt. Because of this, politics, particularly right-wing politics, rather than the amount of debt, is the issue.

Why US debt is more political than economic

By triji

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