Commentary: Negative impact of the alarming $16.4 trillion U.S. debt growing every day

Each American’s share of the U.S. debt now totals $52,000

By Ed Lane

(Editor’s note: Since this commentary was first published in the February edition of The Lane Report, the national debt has risen to nearly $16.6 trillion — that’s $52,581 per individual and $146,610 per taxpayer.)

In gathering current financial data to illustrate the serious and significant impact that the $16.4 trillion and rapidly increasing U.S. national debt will have on the future of every American citizen (now living or yet to be born or naturalized), I visited usadebtclock.com. In addition to the national debt, the website also estimates the total U.S. unfunded liabilities for Social Security, Medicare, prescription drug benefits and national healthcare equal an additional $123.3 trillion.

Translated into per capita debt, the national debt is $52,000 and unfunded liabilities are $390,000. On a per household basis, the national debt is $135,000 and unfunded liabilities are more than $1 million.

Ed Lane is CEO of The Lane Report.

Translated into per capita debt, the national debt is $52,000 and unfunded liabilities are $390,000. On a per household basis, the national debt is $135,000 and unfunded liabilities are more than $1 million.

In addition to the alarming growth of U.S. debt, every American should be extremely concerned about the fact that 40 cents of every dollar the U.S. government now spends is borrowed. The Patient Protection and Affordable Care Act (Obamacare) is currently being implemented, and this new legislation will likely increase current deficit spending and future unfunded liabilities.

There continues to be strong interest in passing legislation to require the U.S. government to have a balanced budget. This idea has possibilities if legislation can be adopted that will control all of the following: spending, tax increases, and spending as a percentage of gross domestic product (GDP). Not easy legislation to pass, because one legislator may want to raise taxes while another may want to reduce spending in order to balance the budget.

In addition to the debt, there is the issue of paying interest on U.S. Treasury bonds and notes that comprise a major portion of the U.S. debt. The average interest expense on the U.S. debt over the four fiscal years 2008-2011 was $430.7 billion. In mid-January of FY 2013, the yields for one-, five- and 10-year U.S. Treasury notes were 0.14 percent, 0.77 percent, and 1.87 percent annually. The lower interest rates reflect the Federal Reserve’s aggressive quantitative easing policy; the central bank buys financial assets, thus creating money and injecting cash into the economy.

Because of lower interest rates on T-bills, the FY12 spending for interest on the U.S. debt was reduced to $220 billion. Although much lower than the prior four years, FY12 interest expense on the debt was exceeded only by spending of the Department of Defense, Medicare and Medicaid. Erskine Bowles, co-chair of President Obama’s bipartisan deficit-reduction commission, anticipates interest payments will exceed $1 trillion in FY20. Interest rates can be affected by a credit downgrade issued by a credit rating agency, inflation, the perception by lenders the U.S. debt is a risky investment, or weak global economic and/or financial conditions.

The Federal Reserve’s low interest rate (easy money) policies have been financially devastating to yields earned on pension investments by state and local governments; retirement funds owned by unions, businesses and retired persons; educational and philanthropic endowments.

For two centuries, the strength of the U.S. free market economy has been the key ingredient to the United States’ leadership position as a global economic powerhouse. The U.S. government must focus on reducing deficit spending; streamlining a bloated government bureaucracy and regulatory systems; and promoting self-reliance for all able-bodied Americans instead of dependency on entitlements.

The negative impact of the federal government’s debt, fiscal and monetary policies on the U.S. economy are growing exponentially and if not soon modified could cause catastrophic economic problems. The U.S. Senate has not approved a budget for over three years and nine months. During this time period the U.S. national debt has increased $5 trillion.

“The consequences arising from the continual accumulation of public debts in other countries ought to admonish us to be careful to prevent their growth in our own.” – U.S. President John Adams, First Address to Congress, Nov. 23, 1797

Ed Lane (edlane@lanereport.com) is chief executive of Lane Consultants, Inc. and publisher of The Lane Report.