Over the past 30 years, the U.S. economy has become increasingly dependent on credit and debt. Unfortunately, much of the borrowing that has taken place was based on inflated assets and has now become unsustainable. The result is a loss of jobs and wages, the foreclosure of homes, closing of businesses and a rising number of bankruptcies.
According to House Speaker Nancy Pelosi, 3.6 million Americans lost jobs in the past 13 months, with 598,000 lost in January of 2009. This is the largest one month drop since October 1982. By sector, the job losses break down this way: 207,000 in manufacturing; 111,000 in construction; 121,000 in professional and business services; 45,000 in retail; 28,000 in leisure and hospitality. The hardest hit sectors are in blue color professions, but the effect of those job losses will most likely have a ripple effect and eventually impact white color professionals.
To address the crisis in the U.S. economy, President Obama has proposed the American Recovery and Reinvestment Act. This bill, which is now before the U.S. Congress, is intended to provide a stimulus to the economy in the form of $820 billion in direct funding and tax credits. The goal of this stimulus bill is reversal of the downturn brought on by the current debt crisis. It’s supported by several Nobel Prize-winning economists, including Joesph Stiglitz and Paul Krugman. Other economists, such as Noble Prize-winner Robert Lucas, Jr. are critical of the bill and the burden it will place on future generations.
In addition to debt issues at the consumer and business levels, the federal government is facing its largest debt in 53 years. The U.S. gross national debt is currently listed as $10.7 trillion. The substantial increase in this figure under the Bush administration is attributed to lower taxes for the affluent, the invasion of Iraq, and deregulation of Wall Street speculation.
Who do we owe this debt to? Half of it is attributable to military expenses and interest. While most of the U.S. debt is internal, it’s estimated that about 25% is owed to foreign governments. China and Japan account for 40% of the foreign debt, Great Britain 12%, and the rest is owed to about 2 dozen other countries.
Is the national debt too large for the U.S. economy? The question of sustainability has yet to be answered. The current debt will not be paid off until sometime in the future, putting the burden on future generations of taxpayers. If in time it becomes apparent that those generations cannot sustain the debt, there is the possibility of the federal government defaulting on the debt or that substantial measures such as a steep rise in taxes and drastic cuts in services will be required.