One of the golden rules in economics is that you shouldn’t spend more than you make. If you do — if your outlays are larger than your inlays for any given period — then you are running a deficit. Repeat deficits turn into debt, and while there is such a thing as prudent use of credit, Americans generally seem unable to come to terms with this rule. At nearly every level, from households to the federal government, we are spending more than we earn, making debt one of the defining characteristics of the U.S. economy.
The problem at the household level is staggering. Americans held just over $11.2 trillion in debt at the beginning of 2013, but total household debt levels have actually been declining since about 2008. Between the third quarter of 2008, when total household debt peaked at $12.68 trillion, and the second quarter of 2013, household debt fell $1.53 billion, or about 12 percent. As a share of GDP, household debt fell from 85 percent to 67 percent over the same period. This was primarily due to a a reduction in mortgage debt, from $9.99 trillion to $8.38 trillion, which was partially offset by an increase in student loan debt, from $610 billion to about $1 trillion.
The problem at the federal level is also staggering. Gross U.S. public debt was $16.72 trillion in 2013 and debt levels are actually getting worse. Gross public debt is up 67 percent since 2008 and up 420 percent since 1990. Moreover, despite recent reductions to the deficit, public debt is expected to continue increasing in each year of the foreseeable future, projected to climb nearly 30 percent to $21.67 trillion by 2019.
For a different angle on the issue, public debt was about 53.6 percent of GDP in 1990, 67.9 percent of GDP in 2008, and 99.5 percent of GDP in 2013. By 2019, public debt is anticipated to be 97.6 percent of GDP due to a shrinking deficit and ongoing economic growth.
Although the projections suggest that we will break out of the insane and unsustainable trend of ever-increasing debt, the reality of the situation is still incredibly grim. The government is just spending way too much money.