I’m a middle aged dude with a family, own a house, have four kids, investments, all the adulting things.
However, I’m still not sure how a multi-trillion dollar national defecit seeps down to affect my day-to-day life
In: 492
High national debt is the reault of a long period of unchecked spending and high deficit.
The US, for instance, has $1.5 trillion deficit in 2022. When the gravy train stops, this 1.5T goes away and whatever programs rely on this money will see sustainial cut.
In practice, politicians are nearsighted and whoever proposed a welfare cut won’t get to keep their seats for very long. Programs that will be cut are infrastructure, research grants, crime prevention, etc and things that have been neglected for a long time will just collapse and rebuilding them take x10 as much effort, time and money. Countries that went through bankruptcy like Greece is forever behind.
Two words, which a lot of other commentors here seem to have forgotten: opportunity cost. We currently have to spend an ever-increasing amount of the federal budget paying the interest on the national debt. That’s money that can’t go to other things, and over a long enough time it can and will edge out more and more important things from the federal budget. Which means we’ll have to borrow more. Which leads to more interest and round we go, until at some point people lose faith in the government’s ability to service the debt. Then the whole thing crashes.
A bunch of the other commentary here would have you believe this will never happen in the US. I imagine those same people would have loudly proclaimed that Rome would never fall, or the Mongols would never breach the Wall. They are wrong. Unthinkable events happen with monotonous regularity all down human history.
In the short term, every time you see something that the politicians tell you we can’t afford you can, in part, blame the debt. We’re currently paying about $475 billion every year toward interest on the debt. That is a mind-boggling amount of money.
That’s more than enough to pay every student loan, house all the homeless, and pay for every veteran’s medical care. It’s enough money to clean up rivers, give people medical assistance, maybe make a start on expanding Medicare or Medicaid, or shore up the Social Security trust fund a bit. And it’s not going to any of those things *every year*, and moreover a bigger slice of the budget is not going towards those useful things *every year*.
Does this affect you, personally? Yeah, it does. Every time you encounter a bump in our society that money could solve, but doesn’t, it affects you. Every public service you don’t have, every park that isn’t built, every hole in national security, everything that money could solve in our society is a little bit worse because we’re paying this huge opportunity cost. Never let anyone tell you otherwise.
It’s like a bomb under your house with a timer you don’t know. This bomb doesn’t explode as long as the US can get loans cheap enough to cover the payments for the previous debts. But if the cost of US loans goes up too quickly, the bomb explodes on us all. It might not blow up your house until your grandkids have kids in the house or it might go off during your lifetime, but if we don’t disarm it by keeping the debt to a more manageable level or heaven forbid eliminate it, the bomb will eventually blow up on us.
The US debt makes us much more vulnerable to OPEC as currently they only accept payments in dollars. That makes the dollar the primary reserve currency in the world. It massively increases the demand for USDs. If they switched to say the Euro, global demand for dollars would take a significant hit. This triggers higher interest rates for US loans which makes the cost of the debt multiply. There are other factors that could drive down demand for USDs as well, OPEC is just the one I expect to happen.
Any such factor would, at best, result in austerity measures for decades. Right now we’re playing chicken that the cost of loans will stay low forever because our politicians are all short sighted morons because our voting population doesn’t care. Until it blows up in our faces, there is unlikely to be change.
I hate doing this on an ELI5, But I always recommend listening to this podcast episode https://www.npr.org/sections/money/2012/08/07/158376579/episode-273-when-the-u-s-paid-off-the-entire-national-debt The rest of this is making sure I have enough text in here to keep this from being removed. You’re probably better off listening than reading it
The thing to remember about the US debt is that it is an investment opportunity for the world. The US government borrowing money and paying back reliable interest which it can basically set on its own is a tool to manage the US economy and affect the world. Not only that, but the debt is owed in the money controlled by the government. If the US economy goes down the value of the dollar goes down. In most countries if their government started having trouble and their currency went down the amount that they owed would actually go up because the dollar would remain strong compared to their currency.
It would probably be better to not have as much debt. It shows that the government has been using this tool a little bit more than it should.But the amount of debt the US has compared to the amount of money it has and the production it has is nothing compared to a small country with an unreliable economy owing money in someone else’s currency
Remember in 2019 when Mcdonalds still has a dollar menu, or you could find a slice of pizza for under $2? More national debt results in more dollars in circulation chasing the same amount of goods. When your grocery bill doubles for the same amount of food, and your salary increases only 5%, you have less buying power. Bigger national deficits eventually translate into inflation. Interest rates also increase as a response to inflation. If you are looking to finance a new property or have a friend looking to buy a house, you might be aware that mortgage rates have just hit 8% from 3% in 2019.
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