Which crisis scares you more – climate change or our growing debt?
Climate change certainly receives a lot more attention in the media and a lot more attention from politicians, even if they’ve done little about it.
Last week, as one small example, President Obama said in an interview that his push to address climate change was influenced by an asthma attack his daughter Malia had when she was a four-year-old. Asthma is a medical condition that has no connection to climate change. It would be as logical to suggest that climate change cured her asthma, since she no longer has it and the climate has continued to deteriorate since she was four.
We’re not suggesting that climate change doesn’t merit serious attention, but even if it’s as big a deal as environmental activists would have us believe, the U.S. is going to have little impact unless China, India and other ozone-busters get on board, too.
Debt, though, which President Obama and most members of Congress rarely talk about, just keeps rolling along.
$154,122 Per Person
As of today, the U.S. National Debt stands at more than $18 trillion, which is 104.56% of gross domestic product (GDP). That comes out to $56,699 per U.S. citizen. Of course, not every American pays taxes; count only taxpayers and the debt comes to $154,122 per person.
And it continues to grow, unabated. The gross federal debt is projected to increase to $27.3 trillion by 2025.
If you had to pay that debt off tomorrow, what would it do to your standard of living? If we don’t pay it off, though, what will it do to your children’s standard of living?
Annual interest on today’s debt comes to more than half a trillion dollars ($525,650,424,225) even at today’s interest rates. What will happen when interest rates increase to a normal level? At some point, it will be impossible to maintain government services at their current level. Taxes will increase and a majority of your paycheck will be needed just to keep the U.S. solvent.
As baby boomers approach retirement, many are thinking about the “legacy” they want to leave to their children. Their children will need a big inheritance just to pay their taxes, unless steps are taken soon to bring debt under control.
But the national debt is just part of our debt problem. As previously noted, the federal government also has unfunded liabilities to cover Medicare, Social Security and government pension obligations that by some estimates exceed $100 trillion.
Then there’s state and local government. While municipalities like Detroit and Chicago are in tough financial shape, state and municipal debt is small compared with federal debt, but still totals more than $3 trillion. We’re basing our estimate on the assumption that it has increased since 2012, when it reached $2.9 trillion, according to a December 2014 report from the U.S. Census Bureau.
Household debt, meanwhile, remains below its 2008 peak of $12.68 trillion, but it has been inching back up. A couple of years ago, it dropped to $11.2 trillion, but by the end of last year, total household indebtedness was back up to $11.83 trillion.
Compared to What
Then, of course, there’s the rest of the world. In total, the world is more than $60 trillion in debt.
In Japan, the national debt exceeds $10 trillion, which is significantly less than U.S. debt, but the population and gross domestic product (GDP) are lower than in the U.S., so debt is just under 200% of GDP.
The national debt of Greece, meanwhile, is a relatively small $375 billion. But, as in Japan, national debt is nearly double Greece’s annual GDP. And if a small country like Greece can have an impact on all of Europe – all of the world, really – imagine what will happen when the U.S. goes bankrupt.
Greece was the center of attention last week, when it made a crucial payment of $497 million toward its bailout. Some questioned whether Greece had enough cash, but the payment shouldn’t have surprised anyone, as it was a necessary step toward securing the final portion of its 240 billion euro international bailout.
Regardless of the bailout, Alexis Tsipras, leader of the Coalition of the Radical Left, is, of course, seeking a reduction of its debt and other concessions. Greece has done precious little to reform its spending problem, but Tsipras was elected because Greeks would like to do even less.
Greece will position itself as the victim of the bullying Trioka, even as it seeks more money. It’s almost as farcical as peace-loving Iran seeking to have sanctions lifted so it can continue to develop nuclear weapons without a major impact on its economy.
Worry about climate change if you’d like, but the severity of that problem remains uncertain. The impact of debt, though, is undebatable. The standard of living of your children, your grandchildren and their children will be affected if nothing is done about it.
And if climate change is as important as environmental activists would have us believe, it won’t matter. Unless the debt issue is addressed, we won’t be able to afford to do anything about it.