How Excessive Government Debt Hurts the Common Man

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How Excessive Government Debt Hurts the Common Man - By: Jerry Work, Posted on: 2008-04-14

In order for the U.S. government to fund wars, pay farmers not to raise crops, build bridges to nowhere, and all the other excellent things it does, it issues debt. Currently, that debt is to the tune of $9.2 trillion - $5.2 trillion debt in debt held by the public, and $4 trillion in intragovernmental holdings (money spent from various funds like Social Security that, in theory, are supposed to be paid back some day). This debt is usually in the form of bonds which pay monthly interest and the return of principal upon maturity (although the debt can take other forms that are much less understandable). The rate paid on government bonds is generally considered a "risk-free" rate, based on the idea that you will always get repaid by the U.S. government.

One way the government deals with its debt burden is by increasing the amount of currency in circulation. This has the net result of decreasing the buying power of those dollars; i.e., inflation. Inflation helps the debtor by decreasing the value of debt. Were the opposite situation to occur (dollars increasing in value) then it would cost the government more to borrow. Much lip service is given on the part of the Federal Reserve about holding inflation down, but inflation is really the Fed's best friend.

While all that extra currency floating around is eating away at the value of a dollar, it is also eating away the buying power of American consumers. As a result, you have a dual punishment for the tax payers. On one hand, the tax payers are left with crushing levels of debt to be dealt with in the future. Relying on social security to get you through your twilight years? I wouldn't count on it. On the other hand, those same tax payers are finding that it takes more money just to survive, because of the very inflation that our government is causing.

Add in record breaking oil prices which translate into gas prices the likes of which Americans have never seen (not even in the 1970's, on an inflation-adjusted basis), on top of falling real estate values and mortgages that people can no longer afford, and you have a perfect recipe for a down economy.

How can we get out of this mess?

To start with, our government has to change its ways. We need to accept the fact that we cannot be the world's police force. Not if we have to foot the bill. It's time we prioritize. We need to focus on balancing our budget and maintaining a strong defense at home. We're stretched too thin, and leaving a very poor situation for future generations to deal with. I don't think it's too late, but we need to act now.

The other thing we can do is get control of ourselves. We have too much debt. We have been lured into buying houses too big and cars too fast. We need to learn how to budget, and how to use credit sensibly. It's time for all of us to accept our share of responsibility, and expect the same from our leaders.

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