U.S. Debt Officially 105% of GDP

Zimbabwe or Weimar Republic, here we come!

According to the U.S. National Debt Clock web site, the U.S. National Debt has exceeded $20 Trillion. This is significant, because it is now greater than the Gross Domestic Product.

What is 'Gross Domestic Product - GDP'

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well (in the United States, for example, the government releases an annualized GDP estimate for each quarter and also for an entire year). ~ http://www.investopedia.com/terms/g/gdp.asp#ixzz4vCm8lejI

The U.S. hasn't been at this level since World War II. During World War II, it made some sense to have a lot of debt, because the country was ramping up its military ability to fight the war. The government needed war supplies and they needed to pay the private sector for producing those war supplies. The government issued War Bonds and encouraged citizens to buy them.

After the war, due to the fact that the rest of the industrialized world was almost completely destroyed, the U.S. economy boomed and the government was able to pay back a lot of the debt incurred from the war. Truman reduced the National Debt from $271 Billion down to $253 Billion. The economy grew at good enough pace to increase GDP over debt spending and allowed the Debt-to-GDP ration to drop from a high of 119% in 1946 to a low of 31% by 1981. We have steadily increased the ratio since then, due to government spending out pacing budgets. In 2000 and 2001, it looked like we were headed back to reducing the Debt-to-GDP ratio, but then things changed. But, it wasn't until 2009, when the Debt-to-GDP ratio jump from 67% to 83% that things started to get out of control. In less than a decade the Debt-to-GDP ratio had jumped by 56%.

What will happen?

Well, history shows, that when a country incurs a lot of debt, usually due to funding war that is fails to win, its money begins to devalue. When the money devalues, inflation starts and the government usually takes actions that end up making things worse and causing hyperinflation. This happened in the 1930s Germany with the Weimar Republic and in the 1990s in Zimbabwe. In Germany, the money was so useless, that they would have to carry it around in wheel barrows. It was cheaper to use the money as firewood or wallpaper than to buy those actual items.

The same thing happened in Zimbabwe. Forget about carry around a wallet for your money, it wouldn't fit.

The issue with both Weimar Republic and Zimbabwe is that once it hit a certain level, it increased significantly. Germany got out of their hyperinflation by starting World War II. Zimbabwe stopped printing currency and is going to switch over to the US dollar.

There is nothing to switch over to for the US and starting World War III isn't going to end well for anyone.

The Federal government needs to cut spending. A lot. By, over a Trillion Dollars. Because a trillion dollars only breaks even, the Federal government needs to start chipping away at the debt, because the interest rate on the debt and other "required" spending will soon take over the entire budget. There is no other way out.

The last time a President managed to reduce the Federal Debt for his entire time in office was with Calvin Coolidge. He cut the Federal budget in half and removed 25% of the Federal Debt. But, this was before Social Security and all the social programs that have been added. All the "promises" made by the Federal Government.

The hard choices have to be made now or there will be even hard choices later. And, for the rest of the world, it doesn't get better for you, because if the US goes down, so does our spending.

!originalworks

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