The United States Debt Wall
It is no secret that the U.S. is facing a debt crisis today. The national debt has risen to $14 trillion this year and it is predicted to increase to $16 trillion in 2012. High interest rates and budget deficit issues are one of the key reasons why the national debt has ballooned to this amount. And as long as the U.S. federal government can’t find a way to minimize the country’s debt, the country and its citizens will suffer from its consequences.
Marc Nuttle, a global economic policy specialist has recently applied the debt wall concept in the current financial situation of the U.S. This debt wall happens when a nation depends on foreign debt to subsidize the country’s deficits and there’s not much foreign capital flow entering the nation. And given that the U.S. is in a rather crucial circumstance right now, they are predicted to hit the debt wall quickly. According to Nuttle, the U.S. has as few as 18 months before they reach this wall.
With the tremendous debt problem of the U.S., there is no doubt that the debt wall will be hit. And having America’s back up against the wall brings bad repercussions to the nation’s financial system and its citizens. Some of the results will include very high interest rates, lack of employment, hyperinflation, bankruptcies and even sovereign instability.
The U.S. budget deficit issue has been in existence for 40 years. Clearly, the U.S. is spending more than they are making which resulted to numerous debts. And since the nation isn’t earning a sufficient amount of money, they are inclined to depend on foreign debt to supply them the funds for government expenses. The reduced foreign capital flow or investments in the nation is detrimental to the U.S. currency. The lack of foreign capital flow entails a reduced demand for the currency and the U.S. will end up with a high supply of useless currencies. Due to this, currency devaluation will happen. Hence, what was once one of the most powerful currencies on the planet is just a few months away from getting devalued and pretty much close to becoming worthless.
Another repercussion that every American citizen should be worried about is the possibility of the U.S. going bankrupt. Reaching the debt wall is a symbol of a serious financial problem and this is something that all nations’ economy should steer clear of. When the wall is hit and there’s no money going in to the economy, liquid capital runs dry. Without liquid capital, the country won’t have the ability to finance their deficits. To put it simply, without money, the U.S. economy will go bankrupt.
And if you believe that the U.S. will be the only one affected by this problem, you should reconsider that thought. The entire world’s financial situation is affected. For economists, the world capacity for sustainable debt is $42 trillion and that is 70% of GDP. But at this time, the world’s debt is already at $58 trillion and that’s 97% of GDP. They predict that by 2013, the world debt is going to be $70 trillion, 116% of GDP which leaves the world’s economy with nothing but debts to their name.
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