Great Summary of U.S. Debt and World Economy

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U.S. Debt Crisis

On May 16, 2011, the U.S. debt exceeded $14.3 trillion, the legal debt limit. This burden originates from the 1980s, the Reagan administration, low interest rates and the laissez-faire mantra of deregulation, privatization and liberalization.

With the global financial crisis in 2008-2009, private sector losses were shifted to the public sector, and U.S. debt soared again. When Barack Obama arrived in the White House, it was already 84% of GDP. By the end of the year, it is expected to exceed 100% of U.S. GDP.

In 2009-2019, the U.S. debt will amount to some $20 trillion. The Bush tax cuts and the wars in Iraq, Afghanistan and Libya account for almost 50% of the total. As the costs of the medical services are soaring, the retirement of the large boomer cohorts in the mid-2010s will make the situation much worse.

Through “extraordinary measures,” U.S. Treasury Secretary Timothy F. Geithner has been able to extend the technical debt limit until August 2. So far deep political polarization has made it difficult for the two dominant parties to agree on a new debt limit.

And even when the two will agree on the new limit, they must urgently develop, launch and execute a credible long-term fiscal adjustment program.

Winston Churchill once said that “you can always count on Americans to do the right thing – but only after they have tried everything else.” That, however, was amidst World War II, when the U.S. still spearheaded the world economy and the public debate in Washington was led by the likes of Roosevelt, Truman and Eisenhower.

Extreme political polarization between and within the two leading parties will complicate any potential for actionable compromises.