U.S. government spending habits have reached a new record, and they are currently above 34.5 trillion dollars indebted. But because money is nothing new – it is part of the historical narrative of the country. The United States has been in debt since its founding, borrowing $75 million from domestic investors and the French government during the American War of Independence.
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But how did we get to $34.5 trillion, and why do Americans have to repay their loans while the government's growing debt remains unpaid? GOBankingRates spoke with financial experts who explained.
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Why is the United States so in debt?
“The U.S. government owes a lot of money because of the irresponsible fiscal policies it is currently implementing,” Les Rubin, founder of Main Street Economytell us.
“In recent years, the government has spent more than it brought in through revenue and deficits have steadily accelerated from 2001 to today, where they now exceed $2 trillion per year.”
He added: “We have a growing national debt that we owe to various countries, the Federal Reserve, various government agencies including Social Security and Medicare, and private investors. »
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Personal spending and government spending
According to Eric Mangold, founder of Argosy Wealth Management LLCthe government has an advantage when it comes to loan repayment.
“The biggest difference between personal spending and government spending is that when the government spends – or overspends – and accumulates debt, it has the ability to print more money. »
Mangold noted, “The ordinary citizen cannot simply go to the nearest currency exchange and ask for more money to be printed for them, but the government can. But the bottom line is that ultimately, when the government accumulates more and more debt to nightmarish levels and it can't print more money, at some point the bill has to be paid .
“That tab usually comes in the form of higher taxes for all of us,” he added.
Repercussions for U.S. Default
Have you ever wondered what would happen if the United States defaulted on its loans? Our economy would suffer and “catastrophic consequences would result,” Rubin said.
“The value of U.S. bonds would fall dramatically, perhaps to zero, with the result that many entities would go bankrupt by writing off significant assets that would deplete their net worth,” he continued.
Rubin explained: “The government would not pay the interest or principal on the national debt. Defaulting would likely mean we wouldn't be able to borrow more money, which would mean the country wouldn't be able to finance the running of the government either. This would likely lead to a collapse of the global economy and monetary system, because the United States is very large and is the basis of the global monetary system.
Why the national debt is alarming
According to Rubin, the growing national debt has serious financial implications for Americans.
He went on to explain: “As debt grows and interest rates rise, a bigger problem arises for people who borrow money and use credit cards. For example, as Americans look to purchase a home, interest rates on mortgages have increased dramatically because those interest rates are tied to the national debt rate. This makes buying a home out of reach for some Americans, adding additional stressors.
Rubin added: “Ultimately, interest rates influence what we pay, but also impact the future of the national debt. The country's interest costs have risen to more than $1 trillion a year, making it increasingly difficult for the government to avoid deficits and repay those loans. This is called a doom loop: as debt increases and interest increases, that leads to more debt and interest and so on.
Why Americans need to pay back their loans if the government doesn't
Americans work hard to pay off their mortgages, credit cards, and car loans, so why isn't the government making the national debt a priority?
“The government CAN repay its loans because of its unlimited ability to borrow – for now – or print more money, as long as other countries and investors continue to buy our bonds,” Rubin said.
“However, if one day the country cannot borrow money, we will be forced to default, which will lead to serious consequences. I view the US debt as a Ponzi scheme since there is no source to pay the debt principal and interest except to borrow more money. The Ponzi scheme will collapse when people don't buy our debt. When that happens, we will face economic catastrophe.
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This article was originally published on GOBankingRates.com: The US debt is at $34 trillion: why are we struggling to repay our loans if the government can't?