Biggest Challenge Facing the U.S.

Biggest Challenge Facing the U.S. Economy

Of all the economic problems that face the United States, most experts -- or at least many of the acknowledged "experts" (not pundits) -- believe the growing national debt tops the list. There are other serious problems within the financial milieu in America, including the cost of Medicare and Social Security, because both of these entitlement programs (which serve millions of retired and disabled people) are on shaky financial footing and are a drain on the economy. In fact according to Bloomberg Businessweek magazine, as millions of baby boomers begin to retire, spending on entitlement programs like Social Security and Medicare will "…start eating up government funds" (Bloomberg, 2013). That said, it must be noted that according to Henry Blodget (writing in the Business Insider), the most serious economic issues that harm the average American wage-earner and home-owner include: a) "globalization" opened up a "vast pool of billions of workers" who are happy to work for less than American workers; b) technology increases productivity so companies can do "more with fewer employees"; and c) average hourly earnings have been "flat for 50 years" but executive pay has skyrocketed.

Why does the national debt present the biggest challenge to the U.S. economy?

According to Michael Sivy, writing in the Business & Money section of Time, the most "daunting financial issue" that must be dealt with is the national debt. Sivy explains that federal government debt now stands at "…73% of annual GDP" and this doesn't take into account the money the U.S. government "owes itself, such as the Social Security Trust Fund" (Sivy, 2012). Within ten years (at current rates) the national debt could reach 93% of annual GDP; Sivy gets his data from the Congressional Budget Office, which suggests that in 15 years, the national debt will "…go into the danger zone" (Sivy, p. 1).

Meanwhile Steve Odland writes in Forbes that in 2008 economists were upset when the government increased the deficit from $6 trillion to $9 trillion, and since 2008 the U.S. debt has grown to "$15 trillion, or +67% in just a few years" (Odland, 2012). Odland is obviously incredulous at the astounding growth of the national debt; "What are we doing?" he asks. "What happens when every dollar in the federal budget must go to pay the interest on the debt?" He suggests that there will be multiple "downgrades" and that raising taxes can be a band-aid on a temporary basis, but each dollar that comes out of the "private sector misses the positive economic multiplier impact and diminishes GDP growth" (Odland, p. 1). What must be done? Notwithstanding any decision on taxes, Odland insists that government spending must be cut.

Meanwhile a January, 2013 article in the respected Guardian publication shows that the federal debt ceiling has gone up from "…an unimaginable $14.3 trillion" in August, 2012, to "$16.394tn as part of a package agreed then" (Rogers, 2013). The debt ceiling has not received a great deal of attention in the past but recently Republicans have demanded that the White House agree to severe cuts in the federal budget in return for their willingness to agree to a raise in the debt ceiling. It is what some writers have called a "manufactured crisis" in Washington -- conservatives trying to force the hand of Obama -- but meantime are the Democrats the worst budget managers when it comes to raising the debt ceiling? Not really, Rogers explains. Republican presidents have raised the debt ceiling 54 times and Democrats have raised it 40 times; Ronald Reagan leads all presidents in raising the debt ceiling; he did it 18 times. Jimmy Carter and Lyndon Johnson did it 10 times (Rogers, p. 2).