July 12, 2012
We like debt like a fat kid likes cupcakes. I’ve been in love with both at one point or another (debt and cupcakes)… but luckily I kicked my love of debt habit! However, the same can’t be said for the majority of people in the US and our beloved US government. I already wrote a post on consumer’s love of debt, but now I want to review the total US government debt.
Government debt has been a popular topic the last couple of months as we head towards the Presidential elections, as it should be. We’re continually increasing our debt ceiling because we can’t even stabilize our spending.
Don’t get me wrong, I think this is a big deal… but I don’t think it’s the end of the world. It definitely affects us with the potential for increased taxes, decreased government services, and decreased spending power due to inflation. But… and a big but… our government debt hasn’t affected Apple and their ability to make a lot of money. Why? Because we can have a strong private sector even with a screwed up government.
Our government debt is bad, but it’s not as bad as its been in the past on a % of GDP basis. The GDP is our “gross domestic product”, or basically the value of all goods and services that are produced and sold in and from the United States. According to the stats from April 2012, our debt to GDP is 101% – so we have more debt than our GDP. That sucks.
However, we were up to 120% of our GDP during World War II -which was built on top of a lot of government debt added during the Great Depression. This Wikipedia chart is a little outdated, but you get the point:
How does our debt compare to other countries?
We have the highest total debt, but we also have the highest total GDP. Our government debt per capita (per person) and our debt as a % of GDP aren’t nearly as high as many other countries. Sure, we don’t want to compare ourselves to European countries too much, but most of the European countries have a debt as a % of GDP of 140% – 200%! The worst country is Luxembourg (I had to look it up on a map) which weighs in at 3,443%… Impressive.
If we look at debt per capita, we’re pretty low on this measure as well. Most of the European countries average between $50k and $75k per capita and we are just under $48k. Here’s a look at the full chart from Wikipedia:
What does this all mean?
We have a lot of debt, but it’s been a little worse for us and for other countries. However, that doesn’t mean we should continue this out of control spending, because at some point it will start impacting us majorly.
We need to get our acts together. My hope is our government leaders start getting serious about our debt, but they won’t until we force them to. Just like individuals, the government won’t fix the problem until it becomes such a big deal that there’s no other option.
We’ve also been through a really tough 4-5 years, and we’ve had to turn to the government and printing presses to maintain stability. As our economy continues to improve long term, revenue from taxes will increase and the money spent on subsidizing individuals, companies, and other countries should decrease. I know it doesn’t look pretty right now, but I think we’ll be ok in the long run, and I’ll continue investing by dollar cost averaging into the stock market.
If you really want to scare yourself, take a look at the US Debt Clock which provides a running total of our total government and consumer debt. Is it just a coincidence that consumers have racked up just as much total debt as the government??