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May 2, 2012
Regarding Debt - The Elephant In The Room
Student loan debt has garnered many a headline and has been an explosive subject of late, as Democrats and Republicans squabble over how best to pay for keeping the interest rates low on these federal loans. Those rates are set to double from 3.4 percent to 6.8 percent on July 1.
All the political hubbub over this issue is understandable, given that these loans are associated with a rather important voting bloc, that is college-age and young professionals, and that the elections are only six months away. Yet, the total student loan debt stands at $870 billion--a mere pittance when compared to our nation's ever-growing overall federal debt.
Our federal debt load in the United States stands at $15.7 trillion--an enormous and incomprehensible number for many of us.
When Barack Obama was inaugurated in January 2009, the federal debt stood at $10.626 trillion. A mere three and a half years later, the federal debt level has jumped a whopping 48 percent.
Perhaps it is our inability to relate to or grasp such massive figures that causes us to yawn when we see and hear news related to this issue. The size and growth rate of our national debt, however, is a major issue and, if not addressed, may have troubling effects upon our nation.
To put this rather imposing figure into context, the $15.7 trillion federal debt equates to approximately $50,000 per every man, woman, and child in America. In other words, every citizen of the United States is saddled with a debt burden of about $50,000.
Some simple math indicates then that a family of four, in addition to their mortgage, credit card, and other debt, are carrying $200,000 of the federal debt on their shoulders.
Put another way, using the current 30-year treasury rate of about 3.1 percent, if this $200,000 were financed over 30 years, it would take just over $850 per month for the next 360 months for the family to pay off their share of the federal debt. This is a problem because it is a drag on our nation and limits us as to how great we can be.
The Congressional Budget Office estimates that the United States will pay about $5 trillion in interest alone to service the federal debt over the next decade. Given that 40-50 percent of our debt is held outside of the U.S., essentially we will have $2.0-2.5 trillion vanish from this nation and its economy simply to pay interest.
Imagine what $2.5 trillion could buy over the course of a decade. In addition to that amount potentially given back to the taxpayers to spend as they wish and thus spurring the economy, that amount could pay some large bills. In fact, $2.5 trillion would cover the entire 2013 federal budgets for the Department of Defense ($673 trillion), Health and Human Services including Medicare and Medicaid ($941 trillion), and the Social Security Administration ($883 trillion).
Better perhaps, that $2.5 trillion could be used to enhance or expand our nation's transportation systems or further protect our borders.
From a broader perspective, the huge federal debt and the trillions of dollars needed to service it limit us as a nation. To reduce this debt, we either have to spend less in government agencies and programs and/or increase the tax revenues into the government coffers or some combination thereof. At some point, this simply has to happen, in the same way that as a household, there eventually is a limit to which you can borrow, because those institutions loaning you money are no longer reasonably confident that you will pay.
By allocating monies away then from government spending and/or by limiting consumer spending by taking more tax dollars, economic growth must suffer, since both of the aforementioned are components of economic growth or Gross Domestic Product (GDP). Furthermore, while there is certainly an abundance of fat present in government spending, real and significant government spending cuts will impact some lives and perhaps lives of those who are truly in need of help.
If nothing is done, then it is estimated that by 2080, the U.S. will be spending more than 10 percent of its entire GDP just in paying the interest on its federal debt.
So, with a mere six months before Election Day, our federal debt stands at some 18 times the level of student loan debt. Yet, what are our politicians talking about, most notably President Obama, who gallivanted across college campuses last week? Student loan debt, the far lesser important of the two debt issues.
Chad Stafko is a writer and political consultant living in the Midwest. He can be reached at email@example.com.
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