I appreciate your perspective and the historical context you bring to the discussion. It is true that the United States has had a national debt since 1836, and concerns about its impact on the economy have been raised by policymakers throughout history. However, it is important to clarify that the mere existence of debt itself is not necessarily a problem. Debt can be a tool for financing economic growth, infrastructure development, and other investments that benefit society.
The focus of concern lies in the increasing debt-to-GDP ratio, which measures the relative size of the debt compared to the country's economic output. A high debt-to-GDP ratio can indicate potential risks and vulnerabilities for an economy. When the ratio becomes too high, it can strain government finances, increase interest payments, and limit the government's ability to respond to economic downturns or other emergencies.
Looking at historical examples, we can see the consequences of a high debt-to-GDP ratio and its impact on countries. For instance, Greece faced a severe debt crisis in 2010 when its debt-to-GDP ratio reached alarming levels. The country experienced austerity measures, a deep economic contraction, and required international financial assistance to avoid defaulting on its debt obligations. Argentina is another example where a high debt-to-GDP ratio led to a series of defaults and economic turmoil.
If a country were to default on its debt obligations, there would be significant consequences for its citizens. A default can lead to a loss of investor confidence, a sharp devaluation of the currency, reduced access to credit, and higher borrowing costs. These factors can contribute to economic instability, high inflation, unemployment, and a decline in living standards. Additionally, citizens may experience reduced government services, cuts to social programs, and increased taxes as the government struggles to manage the financial fallout.
While the sky may not have fallen thus far, it is essential to consider the long-term implications and work towards managing and reducing the national debt-to-GDP ratio. It is necessary policy makers focus on the debt side of the equation because, Economy’s income generation is related to its productivity cycle and that takes time but getting debt is easy especially when the underlying currency is fiat in nature. For example, the growth rate of GDP in USA comparing 2000 and 2020 is about 108% ( from $10 trillion in 2000 to $21 trillion in 2020) but in the case of debt, it went from $ 5.6 trillion in 2000 to $ 22.08 trillion in 2020 that is about 388.97% increase.
