Authored by: Ahmed Moustafa
Director of the Asia Center for Studies and Translation
Member of CODESRIA.org – Dakar, Senegal
Group of Strategic Vision Russia and Islamic World
Master in Political Economy and Russian Studies – HSE, Moscow
Is it possible that the level of economic knowledge of the American citizen is low?!
At the outset, it was necessary to prove that American citizen is unaware of the danger of raising the debt ceiling – The US people are staggeringly economically ignorant. From their inability to understand basic financial concepts such as compound interest to their ongoing belief in myths such as ‘new economic paradigms’ and ‘get rich quick schemes’, Americans seldom have a full understanding of how to best manage their money.
Even those with college degrees often lack basic knowledge of major macroeconomic principles and their effects on their own lives. As if that wasn’t bad enough, most often what they do know is greatly skewed by the news media and so-called “experts” who speak with very little understanding of the true issues. This ignorance has reached a point where it is actually dangerous for individuals to make long-term economic decisions based entirely on their own understanding of the issue, as they can risk their financial future if they get it wrong.
The overall ignorance is such that most US citizens are effectively powerless to protect their economic interests, and it’s worrying how few people recognize this.
Why the US News is Not the Truth?
The American writer (Peter Vanderwicken) answers this question through his article in the newspaper (Harvard Business Review) that the US news media and the government have created a charade that serves their own interests but misleads the public. Officials oblige the media’s need for drama by fabricating crises and stage-managing their responses, thereby enhancing their own prestige and power. Journalists dutifully report those fabrications. Both parties know the articles are self-aggrandizing manipulations and fail to inform the public about the more complex but boring issues of government policy and activity.
What has emerged, Paul Weaver argues, is a culture of lying. “The culture of lying,” he writes, “is the discourse and behavior of officials seeking to enlist the powers of journalism in support of their goals, and of journalists seeking to co-opt public and private officials into their efforts to find and cover stories of crisis and emergency response. It is the medium through which we Americans conduct most of our public business (and a lot of our private business) these days.” The result, he says, is a distortion of the constitutional role of government into an institution that must continually resolve or appear to resolve crises; it functions in “a new and powerful permanent emergency mode of operation.”
C- The American Peter Peterson Foundation reveals the concealed size of the national debt and the disadvantages of raising the debt ceiling:-
Why is the national debt so high?
America’s growing debt is the result of simple arithmetic – every year, there is a mismatch between spending and returns. When the federal government spends more than it takes in, Americans have to borrow money to cover this annual deficit. And each year’s deficit adds to the growing national debt.
Historically, the largest US deficits have been caused by overspending on national emergencies such as major wars or the Great Depression. Today, our deficits are mainly due to predictable structural factors: baby boomers, rising healthcare costs, and a tax system that doesn’t bring in enough money to pay for what the government promises its citizens.
The coronavirus crisis has accelerated an already unsustainable fiscal trajectory, due to its devastating impact on the economy and the necessary legislative response. Once out of the pandemic, it will be essential for America’s leaders to address the mounting debt and its structural factors.
THREE MAJOR DRIVERS OF GROWING US NATIONAL DEBT:
DEMOGRAPHICS
America is undergoing significant demographic change. US society is aging as the large baby-boom generation begins to retire — whereas 10,000 will turn 65 every day through 2029. Moreover, people are expected to live longer, on average. That is great news, but it means that we must prepare for the financial needs of a longer retirement. This problem is similar now to its analog in Japan.
These huge demographic trends put increasing pressure on the federal budget — and in particular on vital programs that serve older and vulnerable Americans like Social Security, Medicare, and Medicaid.
RISING HEALTHCARE COSTS
In many ways, healthcare is the most important issue for the US nation’s fiscal and economic future. It represents nearly one-fifth of our entire economy, and it’s the second fastest-growing part of the budget.
The U.S. healthcare system is the most expensive in the world, but people don’t really get what we pay for. They spend over twice as much on healthcare as other advanced nations, but the system does not provide better overall health outcomes. Improving the performance of the U.S. healthcare system will not only improve Americans’ lives, it will help stabilize our fiscal and economic outlook.
INADEQUATE REVENUES
It would be one thing if our tax code was designed to fund all the promises the government is making. But it’s not. The U.S. tax system does not generate enough revenues to cover the spending policymakers have enacted. This rapidly growing imbalance between revenues and spending leads to higher and higher annual deficits, and the result is an increasing national debt balance.
WHAT IS THE NATIONAL DEBT COSTING US People?
The interest adds up fast. As the debt grows, so does the interest US people pay. Similar to a home or car loan, interest payments represent the price US people pay to borrow money. As they borrow more and more, federal interest costs rise and compound. Rapidly growing interest payments are a burden that hinders their future economy.
EVERY DAY, US People SPEND OVER $1.3 BILLION ON INTEREST
Interest will become the fastest-growing part of the federal budget. In ten years, their interest will nearly triple from where it is today.
Raising the ceiling of indebtedness in the USA would be a curse in disguise:-
It would allow the federal government to increase its spending and incur more debt. It would endanger the current level of financial stability of the country as it would remove restrictions on borrowing and allow the government to spend beyond its means. This would inevitably lead to higher national debt which would weaken the long-term economic health of the country and result in higher taxes, inflation, and recessions in the long-term.
Even worse, it would shift the federal government’s focus away from important economic matters and lead it to consider only short-term solutions that can potentially have negative impacts in the long term. With the current unstable financial market, rising in debts could attract more investors and push the prices of assets and commodities higher than normal which could be detrimental to the whole economy.
Such irresponsible and reckless fiscal policy would also increase the power of large financial institutions to influence the socioeconomic process since more debt would mean more control over the government’s actions. In such a situation, the government would also face immense pressure to appease the interests of the private sector and neglect the needs of the public. Therefore, even though raising the ceiling of indebtedness may initially appear to be a blessing, it would eventually worsen the long-term prospects of the country and lead to instability and immobility.
The rise in debt and interest rates in recent years has become a significant concern for both individuals and businesses. As individuals, we face higher borrowing costs to purchase items such as cars, homes and to cover living expenses. Interest rates are also on the rise for businesses, which puts a strain on cash flow and may reduce their ability to invest in new products, services or to expand.
This situation is made even worse when interest payments become more than the profits for a business, which leads to insolvency. All of this leads to increased pressure on consumers and businesses to live within their means, as it becomes increasingly difficult to finance projects or stay afloat in today’s economy.
It is obvious that the increasing debt and interest rates have had a serious impact on the economy, but it is unclear whether this trend will continue or not. The Federal Reserve has kept rates low for a number of years, but it is uncertain how long that policy will last. Many people have argued that raising rates too quickly could lead to a recession, which is why the Fed has been reluctant to do so. On the other hand, keeping rates too low could lead to inflation and eventually stagnation in the economy.
Overall, the situation with rising debt and higher interest rates is worrisome and it is unclear if the current system is working properly. It is essential for governments and monetary policymakers to monitor the situation and discuss potential solutions to ensure that the economy can remain stable. It is also important for individuals and businesses to carefully evaluate the cost of borrowing before committing to a loan and to look for ways to reduce costs or manage their debts more efficiently.
Be guided accordingly.
References:-
https://www.pgpf.org/national-debt-clock?gclid=CjwKCAjwyeujBhA5EiwA5WD7_dv1YwHzdV5oYT5pXa-qSIDJrYpl7wDTeo2wNHVkq7GzSSOi7zQWlxoCNSkQAvD_BwE
