The US Govt Debt: Where’s it going?

“Neither a lender nor a borrower be”. This Shakespearean advice, from the tragedy called Hamlet, might seem impractical today. Often, we wouldn’t be able to buy cars or build houses, if we do not borrow. And, if it were not for those bankers who first lend, by smooth talking us into taking loans, and who then come straight at our throats, if we default, many of us wouldn’t be taking any bold adventurous steps. But, we are not alone. Even organisations and countries borrow money. And, just like many of us, they thrive sometimes.

And they nose-dive sometimes. In 2015, when Greece formally defaulted on a $1.7 billion payment to IMF (International Monetary Fund) it had plunged itself into a crisis. And for an amount that was only a minuscule part of its overall debt of $346bn then. Today, as of 2017, Greece’s total debt is $359bn. Since the 2009 financial crisis, due to austerity measures and conditional pressures from outside, it had ensured that the debt has not risen by over 6pc. But the Greek tragedy is, during the same period, its critical debt-to-GDP ratio has shot up from 127pc to 179pc. Compare that with USA, which is on top of the world when it comes to government debt. Its debt is $21.6 trillion dollars.

And counting. Trillions, not billions. And that is some 60 times more than Greece’s. The 2017 Gross-Federal-Debt-toGDP ratio of USA is 105.4pc. We can call it very high because, never since 1940s, has it been this high. It was an all-time high of 118.9pc in 1946. But it was during the Second World War, which is understandable. It was a record low of 31.7pc in 1981. From the historical data, from 1940 to 2017, we can see that the Government Debt to GDP ratio had averaged at 61.7pc. Borrowing 60pc-62pc of what you are producing may not be a bad idea.

In fact, it could be a great idea, to surge ahead. But when eventually borrowing becomes greater than what is being produced, danger-lights and alarmbells should start off. In 1988, the debt was only half of America’s economic output. But by 2017 it has become greater than its output. Today, therefore, letting this percentage rise more could be disastrous. Especially, for a nation in whose treasury bonds, other countries have invested. When a nation’s leaders decrease revenue by cutting taxes, and yet increase expenditure by putting more dollars into defence, education, medical care, and social security, it is obvious that it will be forced to borrow.

Now, with the mid-term elections going on in the US, let us hope that some new decision makers would emerge, with fresh thoughts, to effectively address the fiscal deficit, and also the debt-to-GDP ratio. In an article titled “What would it take to get US debt under control?” James C Capretta - of the American Enterprise Institute, a public policy think tank - suggests that keeping debt under 50pc of the GDP, by 2033, is ideal and possible. But getting it under 100pc should be a top priority. “Procrastination is the enemy of sound fiscal policy.

The longer political leaders wait to take action, the more difficult it will be to reach reasonable goals”, he says. Republican leaders, including those in the Trump administration, are telling us that the growing deficit is an example for why entitlement programmes like Medicare and Social Security must be cut. Democrat leaders, on the other hand, are telling us that they can reverse some provisions of the GOP tax law to increase revenue. But, for whoever comes to power, there’s another Shakespearean advice: “Wise men ne’er sit and wail their loss but cheerily seek how to redress their harms.”