Debt remains the #1 concern for households across America. Whether you’re in the red, or in the black, debt is omnipresent. It has the propensity to materialize when we least expect it, with medical emergencies and routine expenses alike. Debt has been deemed the necessary evil of our time. It facilitates the financing of purchases that would otherwise be impossible without these lines of credit. Debt may be required for educational purposes, a vehicle, or a home mortgage. Unfortunately, far too many people get into debt simply because of extravagant or extraneous spending on credit cards, personal loans, and other short-term lines of credit. Poorly managed debt is an accident waiting for a place to happen.
In the US today, the focus tends to be on the debt ceiling and how Congress should approach it. From a household’s perspective, we tend to be far more responsible collectively than the government is with our tax dollars. The debt ceiling is a reference to the funding available versus the shortfall. By raising the debt ceiling, the US government can make up the difference. Over the years, presidents have raised the debt ceiling to accommodate the burgeoning needs of US economic growth and prosperity. Contrary to popular opinion, it wasn’t President Obama or President George Bush Junior who were responsible for raising the debt ceiling the most – that honor belongs to President Ronald Reagan. Dubbed by many to be the most successful US president for his efforts at reaching across the aisle, Reagan and Reaganomics proved immensely successful to ending the Cold War and putting America back on track.
President Reagan is also responsible for raising the debt ceiling 18 times since his presidency began. Reagan served 2 terms as president of the United States (1981 – 1989), after unsuccessfully running for many years before that. Reagan roared into office with 489 electoral votes versus Jimmy Carter’s 49. During his time in office, President Ronald Reagan oversaw a renewal of confidence in the US economy, a thawing of relations between the US and the Soviet Union, and unprecedented domestic prosperity. This alone indicates that the mere act of raising the debt ceiling is not in and of itself negative. It is how the country leverages debt that makes the world of difference.
What is the current level of debt in the United States?
Presently, the US national debt is sitting at $21.168 trillion. That translates into a debt per citizen of $64,587. The debt per taxpayer is even higher at $174,313. By contrast, US federal tax revenues are estimated at $3.33 trillion which amounts to a revenue per citizen of $10,162 and a revenue per taxpayer of $27,428. The US federal revenue to GDP ratio has increased from 3.15% in 1900 to 16.62% now. US federal spending is up 135% at $4 trillion, resulting in a US federal budget deficit of $753 billion. Currently, the US federal budget deficit/GDP ratio is 3.761% ($753 billion/$20 trillion). These figures do not paint a positive picture of US national debt, but moves are afoot to try and tackle this runaway problem by implementing more favorable trade agreements with foreign countries like Mexico and Canada (NAFTA), and China.
A brief history of debt throughout the ages
The United States remains a stable first world country, and despite being heavily in debt, still has an AAA rating from Standard & Poor’s Global. Worldwide banks maintain that investments in the US are stable, due to the country’s prosperity. In much the same way as a student with student loan debt can still apply and be approved for a credit card, so too is the US government able to continue borrowing while still maintaining a favorable credit score. Debt is unavoidable in the US, particularly if you are looking to get ahead.
Debt begins at college level and goes throughout your life as you purchase your first home, vehicle, and more. Debt is even being incurred for the purchase of a digital currency such as Bitcoin, Litecoin, Ethereum and so forth. It comes as no surprise that money is available in so many different forms, as it was invented in 9,000 BC when cattle were traded. Paper currency and coins began circulating in 1000 BC. As coins got too heavy to carry around, the Chinese invented paper money back in 806.
Leading authority on debt management, DebtConsolidation.com recently provided an in-depth op-ed into debt throughout the ages. The insights gleaned through this commentary provide valuable information into understanding how government debt levels have whipsawed wildly over time in the US.
Monetary and fiscal policies impact USD
For the rest the world of the world, paper money was only adopted only in the 1700s. There is a difference in value between gold, silver, bronze, and copper coins and paper money – the former items had value while paper money didn’t. Their problem was remedied with the gold standard. This was adopted by the Bank of England (BOE) in 1816 and by the US in 1900. Unfortunately, the gold standard exacerbated the Great Depression. By 1933, the US exited the gold standard. Today the USD is not backed by gold or other assets, it is influenced by monetary and fiscal policy. The Fed and the US government put policies into place that directly influence the strength or weakness of the US dollar.