All countries flirt with a national deficit
at one time or another. But the USA, with more than $21 trillion in
debt as of March 2018, is having a relationship with debt so close they’re practically in
bed together. This mega figure is greater than its economic
output (1-7% of GDP) and, yes, it seems to keep on rising as a general trend. But how did the debt grow that high? And is there any way to bring the balance
sheet back to zero? Why do countries get themselves into debt,
and what are the methods for paying off the deficit? Today we take a look at the events leading
up to the accumulation of this gigantic debt, and we determine if there is any way for the
US to turn this massive deficit around, in this episode of the infographics show – What
if the US Paid off its Debt? Debt is created by either excessive spending
or deep tax cuts. Sometimes tax cuts are justified in order
to spur the economy out of a recession. In 1939 the US debt was at $40 billion and
by the end of the Second World War this rose to $271 billion. After some fluctuations it was still at $271
billion in 1957. But by 1977 it had risen to $699 billion. The US has a long and rich history of spending
heavily on military. Since the nation’s existence since 1776
it has spent 225 years at war and just 21 years in peace. That’s 94% of the countries time at war
and just 6% at peace. US debt spiked after the 9/11 attacks when
America increased military spending to launch its well organized War on Terror campaign. Between 2001 and 2017 the War on Terror cost
$1.9 trillion dollars, so it appears that much of the US debt is incurred by massive
spending in an aggressive defense policy over a long sustained period of time. While some argue that jobs would be lost by
a reduced expenditure on defense a counter argument is that other industries could be
created. Other factors, besides war, contributing to
the rise in debt include the $24.7 billion hurricane Katrina disaster and a $350 billion
bank bailout. The current financial situation is, however
you look at it, a bit of a mess. The country hasn’t always been broke. In January of 1835, the US government succeeded
in paying off its entire national debt – in full for the first time in its history – but
slipped back into the red again shortly thereafter. In the January of 1836 the national debt was
sitting at a comparatively tiny $37,000. From then on the American debt fluctuated
a bit for several years but remained relatively low until around 1863. Shortly after 1948 America began to pay down
the massive debt incurred in the 1930s and 1940s but shortly after 1982 the debt began
to build. From 1992 to 2000 the debt began to be paid
back again only for that huge spike after 2001, and 2008, and the rest as they say,
is history. So just what is national debt? Government debt is money that has not been
raised by taxes and has been spent on goods and services. This money has been borrowed. When a government runs a budget deficit it
costs them more to administer the country than it receives in revenue. To make good this shortfall the government
has two choices. 1 – It prints more money or 2 – It borrows
more money. Although printing more money sounds simple
enough to do, doing so would lead to galloping or hyperinflation. Galloping inflation is when the price of goods
and service rise more than 10 percent per month and hyperinflation is when the price
of services or goods rise more than 50 percent in a month. To print and distribute more money leads to
inflation if there is no corresponding economic growth to justify the surplus cash. Instead governments issue bonds that investors
invest in. The government then gets the money from the
investors and the investors receive an interest on the funds borrowed over a period of time. Just over half of the current $21 trillion
US debt is owed to US investors with the remainder half owed to investors outside the United
States. The more the debt grows the more is spent
on interest repayments and less is allocated to what the government should really be doing
with taxpayers money – investing in local public services. Over time governments risk running into bankruptcy
and seeing their economy collapsing. The US has declared itself bankrupt five times
since its formation. Once when it could not meet foreign debts,
and 4 times due to internal debts. The first time the US became bankrupt was
in 1790 and the last occasion was in 1933. But America is not alone. A total of 83 countries have become bankrupt
in the last 200 years. Debt can be reduced in one of two ways. Debt is forgiven or debt is paid back. Most of the people, countries, and organizations
who are owed money by the States are unlikely to forgive the debt so the US will probably
have to pay it back at some point if it is to reduce the deficit to zero. For a government to start paying back its
debt it will need to spend less than it earns or receives in taxation and run a budget surplus. Seems simple enough, but the problem is that
society becomes accustomed to the level of government spending especially if they directly
benefit from it. Nobody wants to give up what they already
have and nobody wants to pay more taxes. Society in general wouldn’t wish to see
a cut in spending on healthcare, schools, and other essential services. Cutting back on spending leads to less votes,
and a loss of power to the next politician who promises more spending. This is how the problem escalates. So if the American government somehow paid
back its debt then the taxpayer would see more of their tax dollars spent on local government
services and less of that dollar paid back to investors in interest. The overall standard of living should also
rise for most Americans. Voters would need to accept short term financial
pain for long term gain. But with the American political system set
up as it is, a new president could come along and put all of those good years to waste in
a manic spending frenzy. It has happened in the past and will probably
happen again in the unlikely event that America managed to reduce its debt to zero. But who could pay off this rising national
debt? Really you have two choices. The lower and middle class taxpayers could
pay off the debt through tax increases or by inflation or the big business monopolies,
high class politicians and corporations could settle it through targeted taxation. Of course politicians are like everybody else. They don’t want to pay taxes and they don’t
want the corporations, lobbyists, and high net worth individuals who put them where they
are to pay taxes either. To heavily tax the poor normally leads to
sharp rises in inflation and a shrinking economy which is bad for everyone. Paying the debt in full today wouldn’t actually
make too much of a difference in the economy itself but it would speak volumes for US creditworthiness
should a crisis such as the 2008 financial crisis occur once more. So what would happen if the US paid off all
of its debt? The simple answer is – not much. The country would function as it does now
and will probably put in action plans to increase its debts once again. Countries function normally while in debt
as long as the debt is kept to a manageable level and it keeps up with its repayments. So what do you think about the US Debt? Should it be paid off and if so who should
do the paying? Do countries really function better when they
are in debt? Let us know your thoughts in the comments. Also, be sure to watch our other video called
Japan’s Population Problem. Thanks for watching, and as always, don’t
forget to like, share and subscribe, see you next time!