The Golden Solution to America’s Debt Crisis
Right now, the United States is officially $20 trillion in debt. Over half of that $20 trillion was added over the past decade.
And it looks like annual deficits will be at the trillion dollar level sooner than later when projected spending is factored in.
Basically, the United States is going broke.
I don’t say that to be hyperbolic. I’m not looking to scare people or attract attention to myself. It’s just an honest assessment, based on the numbers.
Now, a $20 trillion debt would be fine if we had a $50 trillion economy.
The debt-to-GDP ratio in that example would be 40%. But we don’t have a $50 trillion economy. We have about a $19 trillion economy, which means our debt is bigger than our economy.
When is the debt-to-GDP ratio too high? When does a country reach the point that it either turns things around or ends up like Greece?
Economists Ken Rogoff and Carmen Reinhart carried out a long historical survey going back 800 years, looking at individual countries, or empires in some cases, that have gone broke or defaulted on their debt.
They put the danger zone at a debt-to-GDP ratio of 90%. Once it reaches 90%, they found, a turning point arrives…
At that point, a dollar of debt yields less than a dollar of output. Debt becomes an actual drag on growth.
What is the current U.S. debt-to-GDP ratio?
105%.
We are deep into the red zone, that is. And we’re only going deeper.
The U.S. has a 105% debt to GDP ratio, trillion dollar deficits on the way, more spending on the way.
We’re getting more and more like Greece. We’re heading for a sovereign debt crisis. That’s not an opinion; it’s based on the numbers.
How do we get out of it?
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