Crumbling Under Debt

Last month, for the third time during the presidency of George W. Bush, the U.S. Congress raised America's debt ceiling. By bumping up our own credit limit, the country's leaders allowed us to technically avoid defaulting on our loans, but the move raises disturbing questions about the resolve of our leaders to ever put the country on a sustainable borrowing path.

Economists and businesspeople have been warning for some time that sooner or later, America's binge of borrowing must come to an end, or we will all suffer drastic consequences. Despite widespread concern about America's increasing debt load, the issue lacks the sort of "sex appeal" that the media needs to go at the issue more aggressively. And without media attention, politicians feel little pressure to deal with the issue in a substantive way.

According to Peter G. Peterson, former secretary of commerce under President Nixon, and today chairman of The Blackstone Group, "There are very serious people that believe our current fiscal irresponsibility is heading this country towards a hard landing." A hard landing is a period that combines rising interest rates with rising inflation rates. That would hit Americans right where it hurts, in the pocketbook, by decreasing their purchasing power at a time when everything costs more.

Today, the average American's share of the national debt is $27,000 and rising. How much longer can this continue? While no one can predict the day of reckoning, this much is for sure: Every day we ignore the problem, we increase the chances that the problem will have severe, if not catastrophic, consequences.

"Sooner or later" is rapidly becoming sooner

In the last few weeks, we began to see signals that the consequences may come sooner than most Americans expect. According to Business Week, both the European Central Bank and the Bank of Japan have raised their interest rates -- which could signal that the days of foreign investors propping up the U. S. economy may soon be on the wane. Bottom line, this potentially will have serious consequences for all Americans, but especially for average Americans living on the edge of poverty.

The first consequence will be a rapid decline in Americans' standard of living. Fed Chairman Ben Bernanke insists the economy is strong, because many of the traditional measures of economic growth remain solid. Inventory levels, corporate profits and unemployment statistics all point towards continued growth. But what about the $3 billion a day that Americans cumulatively spend on interest payments? What about the estimated $834 billion that Americans have borrowed off their mortgages last year alone? Do average Americans have any kind of savings to use as a cushion in the event of a "hard landing?" Can an already-hard-working single mom just go back into the job market to make ends meet when serious inflation kicks in?

Second, should our debt levels continue to increase at unsustainable rates, we will soon reach a point where foreign investors demand an interest rate premium for lending to us. Or worse yet, they may simply decide to put their money in other financial instruments than U. S. Treasury bonds, which will suck the wind out of the U. S. economy very rapidly and likely lead to recession or a depression.

Third, weaknesses in the U. S. economy will cause the value dollar to weaken relative to foreign currencies. When this happens, as it inevitably must, everything Americans buy from abroad will cost more. And considering that America's manufacturing base has all but evaporated, we buy just about everything from abroad. With our dollar worth increasingly less, virtually every industry will start to feel inflationary pressures, leading to layoffs and a further downward cycle for the economy.