Though it is one of the lesser-discussed issues facing the country, U.S. federal debt has been a major problem for years. The problem hasn’t just stuck around – it’s gotten worse in a multiplicative scale.
Particularly over the past several decades, U.S. federal spending has swollen significantly. The deficit has become a bipartisan problem, and debt continues to rise by trillions with each presidency. Add in hundreds of trillions in unfunded liabilities, and it can be perplexing to consider how the system stays afloat.
Quantitative easing (or QE) is the practice of increasing the supply of credit in the U.S. economy. Printing money provides resources for investments, and allows for lower interest rates. Combined with the process of fractional reserve banking, the system allows for massive spending. While beneficial in some manner, it also has a number of nasty side effects.
One of the most obvious issues with a pro-printing policy is that there is no clear end game. By raising the currency supply to stimulate short-term economic growth, buyers end up paying for it later with economic slumps which must then be paid off through other methods. It could be thought of as similar to paying off a Visa with a Master Card, only in this case, the debt limit is one that never seems to be adhered to for long.
U.S. officials have voted to raise the debt ceiling consistently, and it looks as if this pattern will continue. Senator Mitch McConnel has said there is “zero chance” the U.S. fails to raise the ceiling again. There has been no end-game strategy put in place for swelling global debts, a problem that is passed on through generations.
The current debt problem the U.S. faces is largely the result of this high time-preference style of economic thought. Things which were decided on in the previous generation are only moving forward thanks to credit expansion, leading to a situation where slowing things down could send the entire system into freefall if things are handled improperly.
However, the consequences are always far ahead of the payoffs. This makes QE a dangerous addiction for the U.S. economy, with some even comparing it to hard drugs. The dependency it breeds makes it an addictive habit where trying to break free can result in harsh reactions.
Lowered borrowing costs just make it easier for people to get money – it doesn’t make it easier for them to pay it back. Despite federal lending policies and constant oversight, QE has also failed to produce a consistent increase in the available pool of goods and services relative to credit expansion. This has resulted in a continued decline in the dollar’s value.
While the system of QE and fractional reserve banking that props up the U.S. economy may be propped up for now, a debt-stricken economy is always subject to the same dangers. When multiple problems and unexpected expenses arise quickly, having some funds saved up is a lifesaver. In an economy based on debt, a series of unfortunate events can be devastating.