Jay Carney, spokesperson for the White House, recently explained the President's priorities in dealing with the nation's debt:
The goal remains one that the president believes is the right one and he hopes that in dealing with our further budgetary and fiscal challenges that he will be able to reach an agreement with Congress to further reduce our deficit in a balanced way and to, most importantly- because deficit reduction is not a worthy goal unto itself, this is all about making our economy stronger, making it more productive and allowing it to create even more jobs. That is the most important thing when it comes to economic policy as far as the President is concerned.
He then called for Congress to raise the nation's debt ceiling from the current $16.4 trillion, which was reached at the end of last year. Since that time, the Treasury has suspended payments into federal pensions and other accounting tricks to keep the government afloat while the current battle ensues between the Democrats, who want to raise the ceiling without restrictions, and the Republicans, who insist on spending cuts to start tackling the current yearly $1.3 trillion deficits.
At current trends, the United States can expect to be in hoc to the tune of $20 trillion dollars. To put this into perspective, consider that if last year, every dollar earned by every economic transaction in the entire country were grabbed to pay off the debt, the country would still owe more. While many in government and the media are not alarmed by the prospect of growing national debt, some credit agencies are sufficiently alarmed to threaten to lower the nation's credit rating, as has already happened once.
At current interest rates, which the Federal Reserve has vowed to keep low for the foreseeable future, the US spends almost $250 billion just to keep up with the interest on the debt. Interest on $20 trillion will be at least $325 billion by 2016. With just the interest payments so high, how does the nation begin to pay back the vast sum of the principle?
Effective at the beginning of this year, the federal government just raised taxes in order to collect an expected $600 billion in new revenue. But if history is any guide, the actual figure will likely be much lower, as people find ways, legal or otherwise, to avoid paying more than what they think is fair. Even more disturbing, Congress intends to increase spending to offset at least half of the anticipated new monies, so chances are good that the higher taxes will actually result in more debt, not less.
History has also shown that nations that get into debt that exceeds their annual gross domestic product seldom return to solvency, and more often undergo economic collapse. There's no way to sugar-coat the issue: America is in serious trouble.
Next column: What countries in similar situations have done in the past to get out of their debt.
National award-winning author Elise Cooke writes books on how to live frugally because she's a patriot who wants to see the United States prosper.