America's national debt is now bigger than the entire economy for the first time since WWII
Topics: Politics, Money, Donald Trump
Thomas Bamford
Featured Image Credit: ANDREW CABALLERO-REYNOLDS/AFP via Getty Images
Topics: Politics, Money, Donald Trump
America has officially hit a grim milestone: The US National Debt has just crossed 100% of GDP, meaning the government now owes more money than the entire American economy produces in a year.
It's a historic milestone for all the wrong reasons, with economic experts calling it a huge wake up call.
According to fresh data from the Bureau of Economic Analysis, debt held by the public hit $31.27 trillion at the end of March, while the economy clocked in at an estimated $31.22 trillion over the same period.
To understand how the US got here, the government is spending $1.33 for every single dollar it collects in tax revenue. That puts the debt-to GDP ratio at 100.2%, a figure that carries very real consequences for ordinary Americans.
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Maya MacGuineas, president of the Committee for a Responsible Federal Budget, didn't mince her words about what that number means.
She said: "It’s happened - the national debt is now larger than the U.S. economy, about twice the historic average. We’ve heard plenty of alarm bells in the past few years about our fiscal path, but this one rings especially loudly."
To put this into historical context, the US has only ever been here once before - in the immediate economic chaos following World War II, when debt peaked at a whopping 106% of GDP.
Back then, there was a pretty good reason for it: the country had just spent years fighting a horrific global conflict on two fronts.
And if nothing changes quickly, it's going to get worse.
In February the nonpartisan Congressional Budget Office released a ten-year forcast warning that, if the current trajectory continues unchecked, the US will shatter that post war record by 2023, with publicly held debt set to reach 108%.
Despite all of this, President Trump has pushed back on the doom and gloom.
Responding to a mixed first quarter economic report from the Commerce Department, he insisted things were going well, saying: "More people are working right now than at any time in the history of our country.
“We’re doing great. And there’s more investment being made in the United States and any country at any time, at any time in history. And a lot of that, I and a lot of that maybe in a certain way, maybe more importantly, auto plants are all coming back to our country.”
This time around, MacGuineas argues the culprit is something far less forgivable, with politicians on both sides of the aisle refusing to make tough financial decisions for years on end.
So, what does it mean for your average Joe when a government racks up this much debt?
For starters, rising debt tends to slow down wage growth and push up interest rates, meaning your mortgage, car loan, and credit card repayments can all get more expensive.
It also means a bigger and bigger chunk of the government's annual budget goes straight to paying off interest, leaving less money for things like healthcare, infrastructure, and education.
The interest bill alone already exceeds $1 trillion a year - that's more than the US spends on defense.
MacGuineas and the Bureau of Economic Analysis are calling for around $10 trillion in deficit reduction to get the debt back under control, as well as a 'Super PayGo' rule that would require any new government spending or tax cuts to be offset, twice over, by savings elsewhere.
The goal would be to bring down the annual deficits down to around 3% of GDP, which would get the debt back under that symbolic 100% mark.
Whether Washington will listen is another question entirely.
MacGuineas is clear however, saying 'there's no time to lose'.