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Tags: u.s. debt | creditor | debtor | nation | government spending | 34 trillion

The US Has Moved From a Creditor to a Debtor Nation—Our Survival Depends on Changing That

The US Has Moved From a Creditor to a Debtor Nation—Our Survival Depends on Changing That

The Blue Angels, United States Navy`s flight demonstration squadron, was initially formed in 1946, making it the second-oldest formal flying aerobatic team in the world, after the French Patrouille de France formed in 1931. (Dreamstime)

By    |   Wednesday, 21 February 2024 02:50 PM EST

Talking with a young man in the grocery line a few days ago, he shared with me that while he was consistently working well over 40 hours per week, his family’s budget was getting ravaged by inflation lately.

Now, if you’ve been following my writing for more than a few minutes, you know how I perk up whenever the conversation veers towards the topic of inflation because I’ve been preaching about the danger it poses to our economy for years—in fact, I even wrote a book about it! But while inflation is a huge problem, it’s not the real problem. It’s only a symptom.

The real problem is our nation’s debt, which is much bigger and more nefarious.

So, just how bad is it? Well, right now, our debt payments already exceed our total tax revenue. The interest payments alone are more than our entire national defense budget.

Look, I’m sure you know someone who racked up a ton of debt they couldn’t afford, so you know what happens next here, but it’s a lot worse when it happens with a country. Especially when most of the world trades in that country’s currency. When America can no longer afford to pay our debts, our credit rating drops, and other countries stop lending to us (they stop buying U.S. Treasury bonds). And we’ve already seen a decline in our credit rating from Standard & Poor, Moody’s, and Fitch in recent years, so this isn’t some wild conspiracy. It’s already happening.

How did we get here?

Our debt is the direct result of decades of reckless government spending coupled with a general lack of financial literacy among our fellow citizens. It gets worse about every four years when politicians, who want to ensure they get enough votes to stay in office, start handing out taxpayer dollars with the same enthusiasm that sweet old neighbor hands out Snickers bars to the endless parade of ghosts, superheros, and Bluey on Halloween night.

You’ve seen it time and time again—Cash for Clunkers, Shovel Ready Jobs, PPP, Covid relief, bank bailouts, student loan cancelation, and countless other egregious government spending programs. While it may seem like these are all intended to help American citizens, they actually don’t. In the short term, these spending programs put very little money into the hands of the Americans who need it most, leading to massive inflation in the long term. Ironically, this could have been avoided if we simply adhered to the Gold standard.

So what does this mean for our economy?

Well, there are three separate outcomes that can hit America either all at once or at different times, and not to perpetuate the “doom loop” but any one of the three outcomes has the potential to destroy our country.

The first is the power dynamic that comes from being a creditor rather than a debtor. When a country has enough money to lend, it enjoys power and opportunities that other countries simply do not. The importance of this cannot be overstated because this power dynamic also plays a significant role in our safety as a nation. If we end up on the losing side of this power dynamic, the next domino to fall would be either the US dollar’s loss of reserve currency status or the inability to borrow any more money, though they both could occur at the same time.

Since the end of WWII, the US dollar has been firmly cemented in as the world’s reserve currency, but that’s been changing over the last several years as a consortium of nations has been lobbying the world to abandon the US dollar in favor of another currency. This is known as BRICS—an intergovernmental organization comprising Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, and the United Arab Emirates. This would essentially dethrone America as a world leader, and would cause the cost of everything to skyrocket, our income to plummet, and food, supplies, and raw materials to become unavailable.

And as America’s financial health declines and we lose our status as the world’s creditor, credit availability will also dry up. You’ve seen this outcome on the personal side, but it’s far worse for a country. That’s because when a person goes broke, they can usually just get another job somewhere and start over. But when a country goes broke, the infrastructure collapses, making business difficult, if not impossible. If you want a real-world example of this, look no further than Venezuela.

How do we avoid becoming a debtor nation?

We first need to throw out the typical “solutions” trotted out by our elected officials, which might include proposals like raising taxes or borrowing more money.

Raising taxes only pulls productive money out of the economy to be wasted by our government, so there’s no benefit here. Besides, we don’t have a revenue problem—we have a spending problem. To put this in perspective, the US government spends about 18 billion dollars per day. And more borrowing creates the same problem by piling onto our already massive debt.

The real solution here is smarter fiscal policy. I’m talking about implementing harsh austerity measures here, reducing government spending, which most of today’s elected officials won’t be on board with. (And most Americans won’t either.) So the only real solution is a long-term campaign to, over years, improve the financial literacy for all Americans so they understand the folly of these failed policies that brought us here and to work at the grassroots level to put fiscally responsible elected officials into office so it doesn’t happen again.

_______________
Dr. David Phelps created Freedom Founders to help its members achieve the freedom they wanted in their lives by building the necessary financial foundation. He is a noted financial expert who is regularly cited by the media, and recently helped the FL Dept. of Education develop its new financial literacy curriculum.

© 2024 Newsmax Finance. All rights reserved.


StreetTalk
Talking with a young man in the grocery line a few days ago, he shared with me that while he was consistently working well over 40 hours per week, his family's budget was getting ravaged by inflation lately.
u.s. debt, creditor, debtor, nation, government spending, 34 trillion
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2024-50-21
Wednesday, 21 February 2024 02:50 PM
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