If the last few weeks on Capitol Hill has taught us anything, it’s that Washington doesn’t have the best concept of living within your means.
Last night’s 11th-hour deal raised the country’s borrowing limit to avoid a possible default on our payments. When Congress passes laws that require spending, the Treasury Department is tasked with providing the funds, but when they don’t have the cash from tax revenues to cover the expenditures, it forced to borrow money—and that’s where we’ve gotten in trouble.
To put our country’s debt situation into perspective, if every working American had to pay their share of the $16.7 trillion debt in 2012, they would be shelling out $123,000.
The national debt is on schedule to hit $17 trillion in the next few weeks, up from $10.6 trillion when President Obama took office in 2009.
This debt obligation comes out to nearly $53,000 if every person living in the U.S., including children and unemployed had to pay a share, according to a Harvard Report, titled 2012 Annual Report of the USA.
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Barry Bosworth, economist at the Brookings Institution, says up until the 2009 financial crisis, debt was a falling share of GDP, which was sustainable. While a deal was reached to avoid hitting the debt ceiling, it’s only a short-term solution, and the current debt-to-income ratio in the U.S. is at about 70%, according to Bosworth.
“If our debt was a constant share of income we don’t have to worry about it,” Bosworth says. “If a family borrows a lot of money, it’s OK as long as they have the ability to service the income. If the debt is a rising share of their income, that would be a concern. “
American GDP slowed dramatically during the recession, and he likens the country’s debt to a family continuing to spend a lot more than the income coming in.
“We can easily manage the payment of the debt, but we don’t want it going up. It is the same for a household, if you take out a mortgage, you don’t want it to get beyond what you can afford to pay.”
Despite the political infighting in D.C., he maintains Congress has done a decent job of cutting expenditures in the past two years, but he still says the spending is unsustainable.
“I would still worry if I were an American,” he says. “It’s not clear that these cuts are sustainable. We will have a debt problem once again."