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Where is our National Debt leading us?

Published in Blog
by admin

I am not an economist, but I have read a lot about economics. Where are we heading with an ever-increasing national debt? The Nation cannot continue to spend itself into oblivion, and we cannot eliminate our economic problems by spending more money.

When George W. Bush became president on January 20, 2001, the national debt was approximately $5.728 trillion. When Mr. Bush left the presidency in January 20, 2009, that debt had increase to approximately $10,626 trillion, or an increase of nearly $5.0 trillion in eight years. Granted, he had been conducting two wars in Iraq and Afghanistan, but the increase in the debt was totally unwarranted.

Mr. Obama has taken that number and run with it. As of February, 1, 2014, the national debt has increased to approximately $17.341 trillion, an increase of nearly $7 trillion in just five years. This means that Mr. Obama and his government have overspent nearly as much as all previous presidents combined. Nevertheless, Mr. Obama’s solution is simple: we need to spend more.

Think about how our debt impacts our Nation. We borrow nearly 45 cents for every dollar we spend. Thus, if we decide to give Egypt $2 billion, we have to borrow $900 million to make that payment, and we pay interest on that borrowed amount in relation to the current interest rates. Similarly, if we increase welfare or food stamps payments, 45 cents of every dollar increase is borrowed funds from some foreign government.

What happens when (not if) those interest rates increase? Interest rates have been purposely kept low for quite some time. Suppose we are paying 2 percent interest for the loans we borrow. What is the effect if the rate increases to 4 percent? Suddenly, our interest payments are twice as much as they were before. And this is not an unlikely situation. Most of our loans are short-term, meaning they are for less than one year. Thus, every year those loans are subject to revision and the interest rates may be increased.

Think about your home mortgage. Suppose you have a loan at a very affordable rate of 4 percent a year, but during the second year of that mortgage the rate increases to 6 percent, and the year after that it increases to 8 percent. In two years, your interest payment would have doubled. Because the bulk of an early mortgage is devoted to interest, imagine how your monthly payment would be impacted.

One of the many things I suspect most people do not consider is the value of our dollar in international trade. The United States dollar is the world’s reserve currency. That means, for example, that all world transactions for petroleum products are in United States dollars. If the value of the dollar declines in relation to the Euro or the Yuan, more dollars have to be presented to sell the same quantity of oil. What happens if the value of the dollar decreases significantly? Many more dollars will have to be expended for a transaction that could have been made days before for less money. If the interest rate for the dollar increases, why would other governments want to hold (own) dollars?

The members of the investing community of the United States need to reflect upon the broad outcome of the financial future of the United States.

– Donald Bogard.

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