The US national debt equals out to about $42,000 for each person and grows at a rate of more than $4 billion a day. With 14 digits and four commas, it’s a number almost too big to fathom. But a new report by CNNMoney gives us reasons to care about America’s growing debt. Not only is it a burden being passed on to our children and grandchildren, it’s creating problems for us as well, according to experts. Here are a few of those problems:
Slower Economic Growth
Economists Carmen Reinhart and Kenneth Rogoff say they’ve uncovered a connection between high debt and slow economic growth. According to CNNMoney the pair have examined data from dozens of countries over the past two centuries and what they found is that when gross national debt hits 90% of the country’s economy, it loses about one percent of growth every year. The US will hit the 90% point this year. Slower growth can mean a reduced number of new jobs which leads to lower household incomes.
High Interest Payments
Interest rates are expected to increase as the world economy recovers. That’s because credit rating agencies or investors may start to doubt whether the US can rein in its mountain of debt which means it will cost Americans more to buy homes and borrow money.
Less Help from the Government
If America’s debt continues to increase, some believe that will lead to less money for government programs as more money goes towards paying interest. There will be less money going towards education, infrastructure and defense.
Inflation
If history is any indicator, high debt leads to high rates of inflation, according to economists. Kansas City Federal Reserve Bank President Thomas Hoenig says a debt crisis could force inflation to rise which reduces the value of the debt, but also impacts people’s savings and income, according to CNNMoney.
Inevitable Problems
Experts believe that without any action the US could face a debt crisis in the next decade. “Most believe it would happen much sooner than 20 years,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget. Many believe it could happen within the next five to 10 years, she said according to CNNMoney. “Like the proverbial frog that fails to jump out of the soup pot as the temperature slowly rises, Americans seem terrifyingly unwilling to act until the pain of debt can no longer be ignored,” Syracuse University professor Len Burman wrote in a recent essay, according to CNNMoney. “As the frog learns in its final moments, by then, it’s too late.”
Tags: Finance, government debt, Economics, credit, Economy of the United States, inflation, Federal Reserve System
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