United States is the biggest economy
in the world with a total GDP of almost $20 trillion and a population of more
than 325 million people. It is followed by China and Japan, which have a GDP of
$12.2 trillion and $4.8 trillion respectively. The US economy is well diverse,
with many sectors contributing to the economy. These sectors include
agriculture, finance, technology, retail, and energy among others.
As a democratic country, the US
holds a national election every two years where new senators and
representatives are elected. A presidential election happens every four years.
In the country, two parties – democrats and republicans – dominate the political
scene. Republicans have always been champions of a small government while
democrats have been more for a large government. Republicans are known to be
fiscal conservatives.
In the past few years, the US
government has been adding debt to the economy and yesterday, this reached a
new milestone. The total national debt reached a new high of more than $22
trillion. The debt has been growing for decades but during the Obama
administration, the debt almost doubled. In the Trump administration, the debt
has grown by more than a trillion dollars.
The country’s debt has grown
because of a number of reasons. First, the country has continued to engage in
many wars around the world. This has led to an inflated defense spending, which
is more than $700 billion every year. This is higher than the combined defense
spending of almost all countries combined. In comparison, China spends about
$145 billion on defense. Second, the country has continued to spend on welfare
programs like medicare and Medicaid. In fact, under Obama, the spending on
these programs rose from $6 trillion to more than $14 trillion.
The debt situation has worsened
under Trump, who implemented tax cuts programs. As such, increased government
spending, supported by lower income has led to a widening of the debt. This may
continue if the democrats come back to power. The proposed New Green Deal is estimated
to cost the US economy more than $2 trillion every year. In total, the current
debt to GDP ratio is more than 105%. This dwarfs the Japan’s 236%. China’s
published debt to GDP ratio is below 50%. However, it is more complicated than
that because of how government-owned banks lend to state-owned enterprises and
town-village enterprises. Indeed, unofficial statistics place this figure at
300%.
In addition to the national debt,
American companies have continued to add more debt. In fact, the total
corporate debt in the United States has gone up to more than $9 trillion. This
debt has gone to mostly mergers and acquisitions, dividends, and share
buybacks.
Individuals too have been ramping
up debt mostly because of the low interest rates. Household debt stands at more
than $13 trillion and delinquencies have started to go up. In fact, a report
published yesterday showed that most Americans with auto loans were behind in
their payments.
All this mean that the US economy
may currently at a risky place. However, this is manageable because the economy
is growing and the fact that the debt is in dollars. This means that in case of
a default, the US could indeed print money and pay back to the lenders. Of
course, this may lead to inflation and a lack of confidence on the dollar. A
rise in inflation may lead to a sharp jump in the price of gold, which is often
viewed as an inflation hedge.
The post Implications of the $22 Trillion US National Debt appeared first on Forex.Info.