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America's National Debt: Growing With No End in Sight

article by Mike Kelley

In the last few months and years the United States has racked up some impressive records, but none of them are good. Its debt is exploding at unprecedented rates. What's behind the problem, and where is it leading?


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America's fixation with the slug-fest between Barack Obama and Mitt Romney and the looming presidential election obscures a huge but little-noticed milestone. Well before Election Day, the debt of the United States will surpass the U.S. economy's entire national output, or gross domestic product (GDP).

You read that right. America's national debt, at $15.79 trillion at mid-year, has surpassed the entire output of the sluggish U.S. economy. And it's still growing fast.

This has happened only once before in U.S. history. In the all-out effort to defeat Nazi Germany and Imperial Japan in World War II, the United States racked up a national debt that exceeded the nation's yearly output. But that debt was quickly repaid following the war, as millions of U.S. soldiers returned home and found jobs in an economy that quickly turned from a war footing to domestic consumption. With a booming economy, the debt stabilized and fell rapidly as a percentage of GDP until, by 1973, the debt had shrunk to 26 percent of GDP.

But that's not happening today. Instead, expenditures for Social Security, Medicare, Medicaid, interest on the national debt and other aspects of federal spending keep growing with no end in sight. An increasingly polarized Congress, embroiled in election-year politics, seems powerless to make the policy changes needed to stop the hemorrhage of red ink.

An unprecedented debt binge

Most Americans seem unaware of just how fast the debt has grown. In 1950, five years after the end of World War II, the national debt was only $260 billion. The debt grew to $5.7 trillion or about 40 percent of GDP by 2000, fueled by the Vietnam War in the 1970s, major defense spending increases in the 1980s and rising numbers of Americans retiring and drawing Social Security and Medicare.

Since 2000, however, the debt growth rate has exploded, the result of massive expenditures in response to the September 2001 terrorist attacks and huge deficit spending to stimulate the U.S. economy beginning in 2008. From fiscal 2003 through 2007, the debt grew by roughly $500 billion a year, but debt exploded beginning in fiscal 2008 as deficits ballooned, averaging almost $1.5 trillion from fiscal 2008 through 2011.

Consider this: The growth in the debt of nearly $6 trillion in the past four years roughly equals all the debt accumulated from the creation of the United States in 1776 to 2000!

In light of these facts, it's hard to believe that in 2001 the Congressional Budget Office (CBO) forecast a total elimination of the federal debt by 2006 and a $2.3 billion surplus by 2011!

Since fiscal 2010, the government has borrowed nearly 40 cents of every dollar it spends. A family spending at this reckless rate would soon go into bankruptcy, but Congress and the president skirt the impending crisis by merely issuing more debt and raising the debt ceiling.

More than a year has passed since Congress passed the Budget Control Act in an effort to get out ahead of the debt debacle. The mandated severe cuts in overall spending amounted to $1.7 trillion over the next decade, but this would barely make a dent in the $16 trillion debt. Congress, however, has returned to congressional deadlock over the debt crisis, and even the president's own fiscal reform plans show the debt continuing to rise for decades.

The fiscal crisis of last summer combined with the failure of Congress and the president to come to terms over the debt prompted Standard and Poor's, the major international credit rating agency, to downgrade the credit rating of the United States from AAA to AA+. It was the first downgrade since the AAA rating had been issued in 1917, and many observers predict the rating could fall to AA within two years if something isn't done to rein in the explosive growth of the U.S. debt.

Most of that debt is held by other nations, with China, at $1.15 trillion, the largest single holder. Many Chinese are nervous about the huge amount of debt owed them, and last year's downgrades have only added to their feelings that it might not be wise to continue investing in U.S. government securities. 

Is this what Americans really want?

What has led to this state of affairs? As is most often the case, complex problems often have several causes. Most economists and observers, however, point to the growing welfare state status as the single largest factor contributing to the rapid growth of U.S. national debt.

Today, half of all American households open their mailboxes each month and pull out a check from a supposedly rich uncle-Uncle Sam. Retiring baby boomers and rapid increases in the elderly population have swelled recipients of Social Security and Medicare, while a recent spike in the U.S. poverty rate has boosted Medicaid expenditures.

Nearly 1 in 7 Americans receives food stamps. That program, begun in the 1960s to fight poverty in the eastern part of the United States and the country's inner cities, now feeds more than 47 million Americans, which is greater than the combined populations of Florida, Texas, Colorado, Arizona and New Mexico. The food stamp program has grown 70 percent just since 2007. Mean-while, 8.7 million Americans-more than the population of New York City-are receiving federal disability payments, a 17 percent increase in the last 3½ years.

Growth rates of the "Big Three" social programs-Social Security, Medicare and Medicaid-are projected to continue to increase. Each year, more of the 76 million baby boomers retire and join the ranks of Social Security recipients. Americans of the "greatest generation" who are still living are in their upper 80s and older, when the need for medical services is the greatest. And a sluggish economy will keep joblessness and poverty high, ensuring that millions will continue to receive Medicaid health-care and unemployment benefits.

Most baby boomers enter retirement blithely confident that their check will arrive each month. But they fail to consider that $2.7 trillion of the nearly $16 trillion debt represents money borrowed from the Social Security Trust Fund to cover other government expenditures. That contributes to another problem that worries millions of baby boomers-various studies show the trust fund to be headed for insolvency as early as 2018.

Looming crisis in unfunded liabilities

America is learning the meaning of the term "unfunded liability" as it applies to Social Security, Medicare and Medicaid. The Congressional Budget Office estimates current obligations under these three programs at about $45.8 trillion, with $7.7 trillion allotted to Social Security and the rest to Medicare and Medicaid.

Certainly federal policy makers are aware of the looming crisis. On June 17, 2008, CBO director Peter Orszag gave this assessment in his statement to the U.S. Senate Finance Committee: "Future growth in spending per beneficiary for Medicare and Medicaid-the federal government's major health care programs-will be the most important determinant of long-term trends in federal spending. Changing those programs in ways that reduce the growth of costs-which will be difficult, in part because of the complexity of health policy choices-is ultimately the nation's central long-term challenge in setting federal fiscal policy" ("The Long-Term Budget Outlook and Options for Slowing the Growth of Health Care Costs.")

A bland but true assessment of a major looming crisis.

If present trends continue, the end of this decade will see a federal budget in which the vast majority of federal tax revenue will be eaten up by interest on the debt and payouts to Medicare, Medicaid and Social Security. Little would be left for vital national defense and hundreds of other areas of the federal government.

All this debt portends slower U.S. economic growth. A recent study by economists Carmen Reinhart of the Peterson Institute for International Economics and Kenneth Rogoff of Harvard University calculated that countries with public debt above 90 percent of GDP grow by an average of 1.3 percentage points per year slower than less indebted countries. The drag of debt will likely cause slower economic growth to an already sluggish economy, making it more difficult for the economy to "grow out" of serious fiscal problems.

In a decision that shocked millions of Americans, the U.S. Supreme Court in late June 2012 narrowly upheld the Obama Administration's health-care reform act. This legislation, whose centerpiece is the mandate that all Americans must have health insurance by 2014 or pay a penalty, will expand the power of government in the lives of Americans and impose a new "tax" that will only spur the growth of the national debt.

And already some states are balking at the hundreds of millions of dollars in increased spending that will be added to stretched state budgets to cover expansion of Medicaid costs called for in the president's health-care act.

Is this what Americans really want? A growing chorus of voices sees these facts and wonders how America can remain the world power it has been for much of the past century. They look abroad and notice the growing economic and political strength of China, India, Brazil, and other rapidly growing economic powerhouses. The 20th century was America's century, but the 21st century will see the United States eclipsed by some other power.

Change to national character 

A number of observers of American life have noted a change to the country's national character in recent years. Many have commented on how millions of Americans increasingly look to government to solve all financial, medical and even emotional problems. Increasingly, Americans are happy to see government play an ever-larger role in daily life, and see no problem with the nation taking on increasing debt to meet real or perceived needs.

Of course, that debt must eventually be repaid. The nearly $16 trillion federal debt, which will surpass $20 trillion within five years at present growth rates, presents a huge burden to children and grandchildren not yet even born.

For generations, Americans have looked forward to working productively through their lives, then at death transferring most of that wealth to their children. It's a principle set forth in your Bible. Proverbs 13:22 says, "A good man leaves an inheritance to his children's children."

Of course, you can't leave an inheritance unless you've accumulated something. But, sadly, more and more Americans today die penniless or even in debt, with nothing to show for a lifetime of work.

It's likely that America's national legacy of debt will lower living standards for future generations by reducing the stock of capital available for future investment, a concern being voiced by a growing legion of economists.

Economists such as MIT professor and Nobel Laureate Robert Solow are worried that saddling future generations with massive debt payments will reduce savings and investments needed to fund new factories and infrastructure investments. The result? Slower economic growth, fewer jobs and lower living standards for generations to come. Edward Mantell of Pace University in New York states it simply: "Instead of transferring our wealth to them, we are transferring their wealth to us."

But it seems that people are unable to see beyond their own immediate needs and wants, perfectly content to allow children and grandchildren to bear the costs of profligate spending today. Instead of leaving a national legacy of prosperity, we may well leave a legacy of higher taxes and reduced economic growth as they struggle to pay the interest on the massive national debt bill we have created.

Does your Bible say anything about debt?

Your Bible, believe it or not, has something to say about America's economic condition. It would be worth your time to study Leviticus 26 and Deuteronomy 28, known as the "blessings and curses" chapters.

One very critical verse, Deuteronomy 28:44, is especially revealing. Referring to foreigners, it says, "He shall lend to you, and you shall not lend to him; he shall be the head, and you shall be the tail." For about a quarter century after World War II, America was the world's greatest creditor nation. But the situation has completely reversed over the last 30 years as the United States has become the greatest debtor nation in human history.

We should ask ourselves: Does Deuteronomy 28:44 seem to read exactly like America's situation today?

Notice also Proverbs 22:7: "The rich rules over the poor, and the borrower is servant to the lender." A popular current restatement of the Golden Rule is expressed as "he who has the gold makes the rules." As of mid-2010, some 52 percent of U.S. foreign debt was held by foreign nations or foreign citizens. Rival or hostile nations such as China, Iran, Russia, Venezuela and Libya own in aggregate more than $2 trillion of our debt, a fact unknown to the average American today.

Just as many Americans find it so easy to swipe a credit card, Washington finds it so easy to issue government notes and bonds to cover more government spending. It all seems so simple, so painless-at least until the bill becomes due. And just as breaking the credit card habit is so painful to many individuals, so is breaking a borrowing habit painful for a nation.

Today, we see the United States operating under a curse, a curse foretold in your own Bible.

As a nation, by collective choices over the past 50 years, the United States has created a debt unlike anything else in human history. Your Bible reveals that this massive debt is a major factor that will ultimately lead to the demise of America as a free nation.

But there truly is good news. A new economic world order is on its way-not that of the evil end-time system foretold in Scripture, but one beyond that in a new age that will soon dawn. It will be like nothing you have imagined. You can read about it in other articles in this issue. And although America's debt has grown so huge that it will likely cripple the nation's future, you can ensure your place in the exciting, prosperous world to come. We hope and pray you'll take the necessary steps in that direction!

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