U.S. Debt: The Next Financial Crisis?

Abstract

As the U.S. economy has mainly recovered from the 2008 Financial Crisis, with unemployment below 5%, inflation below 2%, and the stock market near all-time highs, there is growing concern about the huge amount of U.S. government debt, which today stands at over $20 Trillion dollars and 106% of Debt/GDP. Could this be the next thing to derail the U.S. economy, and in so doing, negatively affecting nearly every other country in the world? This paper reviews the size and scope of the U.S. National Debt in it’s historical context. There are three reasons to be alarmed about this, especially now. First, the annual budget deficit, which had been shrinking in the later years of the Obama administration, is once again on the rise. Second, the Republican tax reduction bill is estimated to add another trillion dollars to the overall level of government debt in the next 10 years, even with higher GDP growth rates factored in. Third, the Trump administration, while slashing other areas of government spending (State Department, Environmental Protection Agency, and more) is once again seeking major increases in military spending. This scenario is strikingly similar to the early 1980’s, where deficits soared as a result. The paper also offers some solutions as to what can be done to bring it down to a more manageable level (or at least reduce it’s rate of growth). Like many things in economics, the “best” solution is to find ways to return to levels of historical GDP growth rates (3% and above).