U.S. Debt Now Equals Our Economy Plus We Have An Historically Slow & Jobless Recovery

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“…they can come for the ride, but they have to sit in back.” ~ President Obama referencing the GOP

We have a nearly 2 trillion dollar increase in debt this year. For every dollar we spend, we borrow about 42 cents. At this rate, our debt will exceed our income (GDP) soon and once that happens we will being pay off interest not debt.

Congress is spending without a budget having been passed. It’s unconscionable but it seems to be a real political plus for them since they never have to admit they voted for the unpopular spending.

In 2012, we will have a $1.6 trillion in deficit spending.

The Friends of the U.S, Chamber of Commerce reported that the U.S. debt is now as big as the U.S. economy for the year. The money we owe to our creditors including social security comes to $15+ trillion, equal to the value of every good and service we produce.

Even if you don’t count the money owed to social security and only count what we owe to creditors, the debt would be 10+ trillion or 70% of our economy but the ratio will continue to deteriorate as the social security funds are depleted.

The economy will not grow if the debt ratio hits 90% of the GDP* according to economists, Carmen Reinhart and KenRogoff. Fed Chair Ben Bernanke stated in April 2010 that “Neither experience nor economic theory clearly indicates the threshold at which government debt begins to endanger prosperity and economic stability. But given the significant costs and risks associated with a rapidly rising federal debt, our nation should soon put in place a credible plan for reducing deficits to sustainable levels over time.”

If we continue on this path, our debt will be $26 trillion in ten years. The $1.2 trillion our leaders cut last summer amounts to a debt of $24 trillion in ten years – a minimal reduction of the growth of spending. It certainly was not a cut, merely a slight slowing down in spending.

At the rate we are going, our economy would have to grow at 6% per year to keep up.

According to Kiplinger, our economy grew 1.8% for the year with the last quarter averaging 3%, but the government is projecting a dip in growth to 2.3%. There is no evidence that there is a sustained recovery, which is unusual historically. On the plus side, housing and job creation have picked up and Europe might not dip into a recession.

The recession and the stimulus have caused the current escalation, and the promise of keeping unemployment below 8% never materialized.

The weak U.S. economy is vulnerable to a European crisis, oil shortage, war, terrorist attacks, natural disasters, and so on. Let us hope none of that comes to pass.

The following table matches us up with other failing economies throughout the Western world. We are right down in the economic gutter with many of the worst of them. Canada, which chose to cut taxes and spending instead of providing a stimulus, is growing and faring much better.

Table: International debt comparisons

Gross debt as percentage of GDP
2007 2010 2011
Forecast
Austria 62% 78% 82%
France 70% 92% 99%
Germany 65% 82% 85%
Russia 5.9% 9.5% 9%
Greece 104% 123% 130%
Republic of Ireland 28% 81% 93%
Italy 112% 116% 119%
Japan 167% 197% 204%
Netherlands 52% 77% 82%
Portugal 71% 91% 97%
Spain 42% 68% 74%
United Kingdom 47% 83% 94%
United States 62% 92% 100%
Asia1 37% 40% 41%
Central Europe2 23% 28% 29%
Latin America3 41% 37% 35%

Click here for the list of countries who are buying our debt and to whom we are endebted

Gross Domestic Product is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value or exports, minus the value of imports.

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