The United States of America, the most powerful economy in the world, also has the largest national debt in fiscal terms with a value of $33 trillion. Is this something that Americans should be proud of?
While it feels good to be the most powerful economy in the world, there is nothing to be proud of when it comes to having the largest national debt in the world. Being the largest debtor in the world is neither an accomplishment nor an achievement to boast about.
Economists love to claim that ordinary people should not be worried about the national debt because of all this debt we are accumulating; we owe it to ourselves. But this statement is totally misleading. This debt we are accumulating, we owe it to our children and grandchildren because we are using the value of their future resources to pay for the obligations of today. This means that our piling of the national debt will make life far more expensive for them.
Beyond the fact that we are implicitly robbing future generations of the value of their future resources, the accumulation of the national debt means that life will even become more expensive for the current generations in a number of ways.
First, the more the national debt increases, the higher interest rates become. Indeed, as the government borrows more money, it has to pay higher interest rates. This can lead to higher interest rates on consumer loans, such as mortgages, credit cards, and auto loans.
Second, the accumulation of the national debt could dramatically lower wages. A high national debt can also lead to lower wages for workers because the government has to compete with private businesses for borrowers. When the government is borrowing heavily, interest rates go up, which makes it more expensive for businesses to borrow money to invest in new projects and create jobs.
Third, the accumulation of the national debt triggers economic uncertainties. A high national debt can lead to economic uncertainty, which can discourage businesses from investing and hiring new workers. This can make it more difficult for consumers to find jobs and earn a good living.
Fourth, the accumulation of the national debt triggers inflationary pressures. Indeed, a high national debt can also lead to inflation. This is because as the government borrows more money, it has to print more money to pay its debts. This increase in the money supply can lead to higher prices for goods and services. Inflation can erode the purchasing power of ordinary people by making their money less valuable. For example, a family that is buying a home may have to pay a higher interest rate on their mortgage, which will increase their monthly payments. This means that they will have less money to spend on other goods and services, such as food and clothing.
Overall, the national debt has a significant impact on the standard of living of ordinary people. The more it increases, the less affordable life becomes for ordinary people. Today, the median price of a single-family home is about $436,000. If the national debt keeps piling up in the next fifteen years, a single-family home will cost about $1 million, college tuition will cost nearly half a million dollars…etc. Life will simply be unaffordable for most people. This is why we shall not be proud to have the largest national debt in the world, and it will widen wealth and income inequality.