United States is the biggest economy in the world with a total GDP of almost $20 trillion and a population of more than 325 million people. It is followed by China and Japan, which have a GDP of $12.2 trillion and $4.8 trillion respectively. The US economy is well diverse, with many sectors contributing to the economy. These sectors include agriculture, finance, technology, retail, and energy among others.
As a democratic country, the US holds a national election every two years where new senators and representatives are elected. A presidential election happens every four years. In the country, two parties – Democrats and Republicans – dominate the political scene. Republicans have always been champions of a small government while Democrats have been more for a large government. Republicans are known to be fiscal conservatives.
In the past few years, the US government has been adding debt to the economy and yesterday, this reached a new milestone. The total national debt reached a new high of more than $22 trillion. The debt has been growing for decades but during the Obama administration, the debt almost doubled. In the Trump administration, the debt has grown by more than a trillion dollars.
The country’s debt has grown because of a number of reasons. First, the country has continued to engage in many wars around the world. This has led to inflated defense spending, which is more than $700 billion every year. This is higher than the combined defense spending of almost all countries combined. In comparison, China spends about $145 billion on defense. Second, the country has continued to spend on welfare programs like Medicare and Medicaid. In fact, under Obama, the spending on these programs rose from $6 trillion to more than $14 trillion.
The debt situation has worsened under Trump, who implemented tax cuts programs. As such, increased government spending, supported by lower income has led to a widening of the debt. This may continue if the Democrats come back to power. The proposed New Green Deal is estimated to cost the US economy more than $2 trillion every year. In total, the current debt to GDP ratio is more than 105%. This dwarfs Japan’s 236%. China’s published debt to GDP ratio is below 50%. However, it is more complicated than that because of how government-owned banks lend to state-owned enterprises and town-village enterprises. Indeed, unofficial statistics place this figure at 300%.
In addition to the national debt, American companies have continued to add more debt. In fact, the total corporate debt in the United States has gone up to more than $9 trillion. This debt has gone to mostly mergers and acquisitions, dividends, and share buybacks.
Individuals too have been ramping up debt mostly because of the low-interest rates. Household debt stands at more than $13 trillion and delinquencies have started to go up. In fact, a report published yesterday showed that most Americans with auto loans were behind in their payments.
All this means that the US economy may currently be at a risky place. However, this is manageable because the economy is growing and the fact that the debt is in dollars. This means that in case of a default, the US could indeed print money and pay back to the lenders. Of course, this may lead to inflation and a lack of confidence in the dollar. A rise in inflation may lead to a sharp jump in the price of gold, which is often viewed as an inflation hedge.
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