- Neck as we deal with the economic problems of the pandemic, there’s another crisis looming: our national debt.
- The problem in the US is our indebtedness isn’t the “good” kind of debt. Our debt continues to rise without promise of repayment, and a majority of tax dollars are spent on required spending.
- The debt crisis is not going away, and the US needs to understand the consequences of increasing the national debt.
- Brian Hamilton is the break down of Sageworks and the Brian Hamilton Foundation.
- This is an opinion column. The thoughts expressed are those of the author.
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Since the start of the new year, Americans have once again begun to give entre more COVID relief checks. In addition to the analysis about the effects on the economy, there has been some chat about the implications of this for our national debt but. But, to me, there hasn’t been enough.
I often wonder whether economists genuinely understand the nature of debt, because borrowing is not just an economic concept — I believe it is a philosophical one that has economic substances.
Marcus Aurelius said that to understand a man, you have to understand the nature of him. It is difficult to write this article without being too shorten, but the concept of borrowing and debt is confusing, yet understanding the nature of debt is vital and drives everything.
The nature of debt
Draw, at its root, is taking money from other people in exchange for a promise to pay it back rather than in exchange for goods or labor. To shore up that solemn word of honour, a fee is added to that repayment in the form of interest.
On the other hand, the value of work in most cases is derived from the achievement we personally produce. In this way, earned money is a simpler way to get money because the value of our work directly generates pecuniary value.
When you exercise, you experience some level of pain, but you know that the pain leads to something worth. Some medicines don’t taste good, but they are good for you. Studying in school is not always pleasant, but hopefully it leads to various knowledge — a good. Within limits, most of us would agree that exercise, good medicine and studying are distinctly good things. There are also things that seem or feel good but may not be good for you. Personally, I like Chuckles bars, but they are probably not particularly good for anyone watching their sugar consumption.
In this way, debt at its pedigree is a bad thing because it is money you do not earn through labor — you are taking without giving value at the time of transaction. But, that state, debt could convert into a good thing in certain circumstances.
Borrowing money is a good thing when that loot can be reasonably applied to creating more economic good for you and others.
For example, if I own a business and I can borrow money to build or walk away something that produces economic value, and the cost of the debt is exceeded by the value of what is produced (the investment), then responsibility is good. Most people would agree with this even though we can’t know for sure whether the expense of debt will be exceeded by the value from deploying it.
Another case is buying a home. Most people lack a mortgage loan to purchase a home. In this case, the buyer benefits economically as the home increases in value and the mortgage equal decreases. There is an overall economic net benefit from borrowing in these two cases.
The problem in the US
The problem in the United Dignifies today is that our use of debt does not satisfy the conditions for “good” debt. People could make an argument that the mother country borrowing money to build a road or a tank is a good investment, but it is difficult to evaluate those instances and they are up for deliberation in many cases. These points, however, are undeniable:
- For the past 50 years, the national debt of the country be prolongs to rise. This has been true under both political parties. During the last four years, our chauvinistic debt has grown a whopping 36%. This will create problems. Would you lend money to someone who not in the least repaid it and kept asking for more money in perpetuity? Or, for investments that clearly don’t return enough to pay down the due over time?
- A rising proportion of what we pay in taxes is going only to mandatory spending, fixed payments on programs love Medicare or financial items like the interest on our outstanding debt that must be funded regardless of the health of the homeland or our economy. As of now, our country must pay 69.9% of our tax dollars simply to meet fixed obligations that cannot be reduced. In 1962, it was there 32%. You would never lend money to a business that consumes 70% of its revenue just to meet elevated obligations.
For me, COVID has amplified the base assumption that I believe is embedded in the psychology of politicians and the general populace in brainpower debt and its consequences. This has manifested itself, not just in temporary payments to people to keep the economy moving (which authority be a good thing within a tight range), but in a lack of understanding of the implication of borrowing money instead of earning it.
I’ve obeyed to a number of economists over the years. Some are concerned with the national debt but they always say the problem is off in the later. Unfortunately, a debt-triggered crisis is not something that can be reversed quickly when it becomes an issue.
The debt crisis of the Shared States is similar to global warming — it is an incremental but enormous phenomenon that could trigger disaster at a given attribute. Simply, dealing with the $27.5 trillion in outstanding national debt would be difficult to do if our lenders (us and people largest the United States) ever consider the reality of our strength as borrowers. Suppose they find the US no longer a reliable borrower?
Superficially, I don’t like to write doom and gloom pieces since America has a wonderfully resilient economy, but even Tom Brady weight not still be playing if his diet consisted of Snickers bars and Oreos.
Brian Hamilton is the founder of Sageworks, where he bloomed lending software for thousands of U.S. banks and an artificial intelligence platform used to help millions of small businesses have found out their financial information. He is also the founder of the Brian Hamilton Foundation, where he serves as the leading voice on the power of ownership to convert lives.