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Sunday, March 9, 2014

Debt: Why the U.S. will fail

Economics effect of debt
U.S. national debt surpassed $17 trillion in 2013
By Mikhal Budu

Benjamin Franklin was once asked whether the United States was a Republic or a Monarchy. His answer was “A republic, if you can keep it.”

Unfortunately, the United States, once an economic super power and a model of democracy, is on a downward trajectory that seems more unstoppable by the day.

Although many would like to believe it could never happen here, all great societies eventually begin to fall and the U.S. appears to be rapidly moving towards the decline of the empire. 

Reasons why the United States is on the downslide 

There are a myriad of reasons why the United States seems on the fast-track to failure.   Here are just a few: 
  • Recent estimates indicate that there were 108,592,000 people in the United States who received one or more means-tested government benefits in the fourth quarter of 2011.  During this same time period, Census data shows that there were 101,716,000 people who were working full-time over the course of the year.  
This data reveals that there were 1.07 people getting some type of government-based means-tested benefit for every one person with a full time job. This data excluded programs like Social Security (which is also on an unsustainable path) and government pensions.  It is unsustainable to live in a society where there are more people collecting money from the government than there are people making money to support those who need the assistance. 

U.S. debt costs billions in interest each year
Annual budget deficits & compounded interest raise the national debt 
  • The United States debt now tops $17 trillion for the first time in history.  A recent debt increase in October of 2013 of $328 billion was an all-time record setting increase, beating the high of $238 billion established just two years prior.  In upcoming federal budgets, the President of the United States has turned away from efforts at austerity. 
Instead, the administration is proposing massive spending increases while making no efforts to tackle the entitlement crisis that is coming in the United States.  The level of debt is unsustainable and as countries in the Euro-Zone like Greece have proven, unprecedented government debt and an ever expanding central government cannot be sustained over the long-term without leading to failure. 
  • A health care crisis is coming in the United States and the Affordable Care Act seems unlikely to have a sustained effect on bending the cost curve downward.  In 2013, Medicare spending was estimated to be 3 percent of the country’s gross domestic product (GDP) in 2013.  By 2038, healthcare spending is expected to rise to 4.9 percent of the GDP.  This level of Medicare spending seems unsustainable, and the reality is that things are even worse. 
Estimates on spending assume that a law will go into effect and remain in effect that includes a significant pay cut to Medicare physicians.  In the past, however, a “doc-fix” has repeatedly been passed by Congress that prevents substantial cuts in provider payments from going into effect. Medicare spending is rising exponentially and is likely to continue to increase as baby boomers age, resulting in a massive drain on shared economic resources in the United States. 
  • The trade deficit has resulted in an absence of jobs.  From 2002 to 2012, there was an $8 trillion trade deficit.  The Obama administration is negotiating to expand trade agreements between North America and Asia, despite concerns that this will result in even more jobs leaving the United States.  The Tran-Pacific Partnership (TPP) would be one of the world’s biggest trade deals and would involve a regional pact among 12 nations.  Lawmakers from the President’s own party are concerned that this will make the economic and employment situation in the United States worse. 
  • The American education system is not preparing students for the future.  The typical child in the United States spends 180 days in school each year compared to the European or Australian child who spends 220 days being educated.  
U.S. teens lag behind other countries on global education rankings, coming in 26th in math among the 34 OECD countries and trailing Portugal, Russia and Slovakia. U.S. kids also come in 21st in science and 17th in reading.  High schools are not giving kids the skills they need to compete in a global marketplace, and college leaves students burdened with thousands in student loan debts and often few marketable skills. An entire generation of kids may do worse than their parents, meaning less tax revenue and less growth potential for a country that is already in serious trouble. These are some of the many reasons why the United States is headed down an unsustainable path and is, unfortunately, unlikely to put the brakes on and stop the slide towards its demise. 

About the author: Mikhail Budhu is the owner of www.financedocumentaries.com - the number one source for finance, banking, investing and trading documentaries. Add Mikhail on Google+ to learn more.

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